At the Securities Enforcement Forum, SEC Commissioner Michael Piwowar discussed his perspective on the ways in which the SEC handles enforcement matters.
According to Commissioner Piwowar, persons should be “on notice” as to what acts, or failures to act, constitute violations of the law, and what potential sanctions and liabilities will result from those violations.
In administering securities laws, Commissioner Piwowar asserted, the SEC faces the issue of increasingly complex laws and rules that govern the markets. He noted, however, that more regulations do not necessarily result in better “outcomes,” stating that this “broken window” approach may not achieve the desired results, and adding that “if every rule is a priority, then no rule is a priority.”
Commissioner Piwowar explained that metrics tied to numbers, such as the total of enforcement actions and that of monetary sanctions, are “flawed metrics” when used to describe the success of enforcement. He stated that it would be a “mistake to put too much emphasis on aggregate dollars as the primary measure of investor harm” instead of on the overall percentage of one’s investment portfolio.
Commissioner Piwowar went on to discuss the analytical framework for corporate penalties and encouraged a retrospective review of the 2006 penalty statement to ensure that the SEC’s rules and policies are achieving their intended objectives.
Lastly, Commissioner Piwowar discussed the implementation of the Office of the Ombudsman, which functions as a liaison in resolving problems between retail investors and the SEC or SROs, and makes recommendations regarding policies and procedures to encourage persons to present questions to the Investor Advocate regarding compliance with securities laws. Commissioner Piwowar questioned whether or not the SEC should create an ombudsman with other types of responsibilities in order to provide a less formal means to address concerns regarding various offices within the SEC.
The Commissioner challenges the popular notion that financial regulators exist to bring enforcement actions and levy fines, the regulatory success of which is judged by ever-higher numbers of both. This popular measure ignores what should be the greater (and more difficult) purpose of the national financial regulators: to establish a regulatory system that works well for issuers and investors and so allow the development of a strong economy. The SEC is but one of the numerous agencies that are able to bring cases – the Department of Justice and various state regulators are able to bring cases, too – but other agencies cannot assume the role of the SEC in creating a sound market system; accordingly that is the primary task on which the SEC should be focused and on the achievement of which it should be judged.