The Securities and Exchange Commission, the Financial Services Regulatory Authority and other financial regulators are facing growing political pressure to increase their investigatory and enforcement efforts in the wake of the Madoff scandal and the other failures of Wall Street. While it is not certain what reforms will be made to the organization, operations, staff, and budgets of these watchdogs, change is certainly coming. In the short term, regulated entities should expect more frequent, more regular, more thorough, and longer examinations than they have faced in the past, as the SEC and others are sensitive to the unwanted prospect of missing the slightest evidence of fraud.
Today, Harry Markopolos explains to Congress how he tried to warn the SEC that Madoff’s venture was a Ponzi scheme. Then, SEC officials will face hard questions before the same Congressional panel as to how this could have happened. Congress will consider, among other things, a bipartisan bill proposed by Sen. Charles Schumer, D-N.Y., and Sen. Richard Shelby, R-Ala., that would add $110 million annually for the country’s top law enforcement agencies to hire hundreds of new investigators and prosecutors for their financial fraud units, including 500 new FBI agents, 50 new assistant U.S. attorneys and 100 new SEC enforcement division employees.
New SEC chairwoman Mary L. Schapiro has also promised to reinvigorate the agency’s enforcement efforts at her nomination hearing last month, though her commitment and ability to do so may be in question given her close ties to the industry.
The Obama administration will be meeting next week with a group of congressional leaders to discuss proposals to increase financial services industry regulation in the wake of the financial crisis.
Financial firms should be bolstering for the coming regulatory wave. Some things they can do now include getting their compliance procedures in order and reassessing their effectiveness, conducting employee training courses, and maintaining thorough and complete records. Companies in the midst of downsizing should take care not to cut compliance departments, particularly those positions with critical institutional knowledge of historical operations.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing clients in securities-related matters. The firm also has an active practice in representing clients with securities compliance and securities regulatory needs. For further information, please contact www.pageperry.com.