The SEC has been under the gun since the financial tsunami of 2008, and more so in the past year in its charge to write new rules required by the Dodd-Frank reforms.
While the securities watchdog has been slow-a-foot in writing those rules, it has also been punishing the fraudsters and gamers who played the financial system. The agency’s recently released first quarter 2012 results of anti-fraud initiatives indicate that over 100 people and firms have been slammed with fraud charges related to the economic crisis.
Unfortunately, says the Wall Street Journal, “that hasn’t quelled criticism that the agency hasn’t cracked down hard enough.”
But Chief Robert Khuzami contends that the 101 cases show that the SEC has been “highly effective in tackling financial-crisis wrongdoing.” The agency also reported that $1.2 billion in penalties have been assessed thus far. In addition, the agency has retained additional monetary relief for harmed investors to the tune of $355 million.
Also additional penalties for “disgorgement” and other monetary relief came in at $355 million, which means a total of almost $2 billion has been assessed. Finally, more than 50 individuals and directors have been barred from the securities industry.
However, the agency still has its critics on Capitol Hill.
One of those is Sen. Charles Grassley (R-IA), who argues that those numbers prove that the securities watchdog has not been tough enough even when it has strong evidence of crisis-related lawbreaking.
Of course, strong evidence of “lawbreaking” does not necessarily translate to proving fraud beyond a reasonable doubt. And the Senator should know that meeting a burden of proof of intent that is needed in a criminal proceeding. However, a lesser standard of “negligence” allows the SEC to proceed with civil actions that enable it to invoke civil penalties and bar bad apples from the finance business.
Though it’s been four years since the crisis hit, the SEC still has a tough row to hoe. According to the Journal, “critics claim the SEC has been too soft, outsmarted or underfunded as it pursues civil cases.” And the players in the industry still have ways to slip from the noose “because defendants can argue the financial losses were due to a failure to predict the meltdown, rather than any fraud.”
In the end, Mr. Khuzami said no one at the SEC is “settling cases unless the settlement makes sense.” And here’s the bottom line: the amount of money SEC officials can recoup from ill-gotten gains is limited to what that the agency can prove were a direct result of the wrongdoing.
Kyle Colona is a New York based freelance writer and a Feature Writer for the Compliance Exchange. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications.