Securities and Exchange Commission Chairman Mary Schapiro announced plans to make it easier for SEC staff to bring enforcement actions and indicated that the Financial Accounting Standards Board would further modify fair value accounting standards.
In a speech before the Practicing Law Institute on Friday, Schapiro said that she would empower the SEC enforcement staff by ending the commission’s two-year “penalty pilot” experiment, which required enforcement staff to obtain a special set of approvals from the commission in cases involving civil monetary penalties for public companies punished for fraud.
“In speaking to our enforcement staff, I’ve been told that these special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed,” said Schapiro.
She was introduced before her speech by Linda Chatman Thomsen, whom the SEC announced on Monday is leaving her job as director of the division of enforcement to return to the private sector. Thomsen was criticized in a congressional hearing last week for the SEC's failure to uncover Bernard Madoff's $50 billion Ponzi scheme, and for declining to answer questions about the SEC's earlier investigations of Madoff.
Another immediate change announced by Schapiro would bolster the SEC’s enforcement program to provide more rapid approval of formal orders of investigation, which allow SEC staff to use subpoenas to compel witness testimony and the production of documents.
“When I was a commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the commission or by [a] duty officer — a single commissioner acting promptly and on behalf of the entire commission,” said Schapiro. “Today, however, many formal orders of investigation are made subject to full review at a meeting of all five commissioners, necessitating that they be placed on the calendar sometimes weeks in advance.”
Schapiro also said that she would improve the quality of credit ratings by addressing the inherent conflicts of interest at credit-rating agencies that largely depend on financial companies for compensation. She also wants to create centralized clearinghouses for credit default swaps so they can be more closely regulated. In addition, she would strengthen “risk-based oversight of broker/dealers and investment advisers,” improve the quality of audits for nonpublic broker/dealers and promote the “safe and sound custody of customer assets by any broker/dealer or investment adviser.”
Asked by reporters about fair value accounting, Schapiro indicated that FASB would work to address the recommendations in the SEC’s recently released report on mark-to-market accounting. “FASB is considering those changes,” she said, according to The Washington Post, but she added that the changes would be “more around the margins, providing flexibility, interpretative guidance and so forth on mark-to-market.”
FASB released a proposal late last month to require disclosures about the fair value of financial instruments in interim financial statements as well as annual financial statements (see
Separately, the SEC is giving companies more time to comment on the proposed roadmap for transitioning to International Financial Reporting Standards. The SEC said last week that it has lengthened the comment period by another two months. Schapiro indicated during her confirmation hearings and in a letter to the Senate that she has misgivings about IFRS (see
