On August 5, 2009, in a speech before the New York City Bar Association, Robert Khuzami, Director of the SEC Division of Enforcement, touted division accomplishments of his first 100 days and formally announced several important changes. In light of recent headlines, the division is critically assessing its procedures and policies and is determined to implement changes enabling the SEC to pursue enforcement more quickly and efficiently.

The initiatives Mr. Khuzami announced include the following:

  • Specialization. His division will create national specialized units dedicated to asset management, structured products, municipal securities and public pensions, foreign corrupt practices, and market abuse.

  • Elimination of Branch Chief Position. The division will reduce the number of managers by redeploying the branch chiefs to conduct investigations. Mr. Khuzami stated: "[T]his flattening of our management structure will increase the resources dedicated to our investigative efforts and will operate as a check on the extra process, duplication, unnecessary internal review, and inevitable drag on decision making that happens in an overly managed organization."

  • Formal Order Process. In contrast to prior practice, the division director now will have the authority to issue formal orders of investigation. Mr. Khuzami stated that he, in turn, intends to delegate that authority to senior officers throughout the division. As a result, in most cases, staff members will no longer have to obtain advance SEC approval to issue subpoenas; instead, they will simply need approval from their senior supervisor. Mr. Khuzami stated: "[T]his means that if defense counsel resists the voluntary production of documents or witnesses, or fail to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on your desk the next morning.

  • Tolling Agreements. Mr. Khuzami will require his staff to obtain his permission before entering into tolling agreements, in which subjects of investigations are asked to give the SEC more time to look into suspected misconduct than statutes of limitations typically allow. Such agreements are becoming far too common, he said, and may undermine the SEC's "message of prompt accountability."

  • Office of Market Intelligence. This new office will be responsible for collecting, analyzing, and monitoring the hundreds of thousands of tips the SEC receives each year.

  • Fostering Cooperation by Individuals. The division plans to increase its efforts at gaining cooperation by individuals, which Mr. Khuzami described as "often the source of some of the most credible and valuable evidence," by seeking

    • the creation of a policy for individuals, similar to the SEC's Seaboard Report (which credits corporation's cooperation), that would consist of a public policy statement setting forth standards to evaluate cooperation by individuals in enforcement action

    • an expedited process by which the division is delegated the authority to submit immunity requests to the Department of Justice;

    • methods for providing witnesses in the appropriate cases with oral assurance early on in the case that the division does not intend to file charges against them; and

    • authority from the SEC to enter into Deferred Prosecution Agreements with individuals or entities subject to certain terms, including full cooperation, a waiver of statues of limitations, and compliance with certain undertakings.

    Contact Information

    For more information on the changes, please contact John C. Grugan at gruganj@ballardspahr.com or 215.864.8226; or Justin P. Klein at kleinj@ballardspahr.com or 215.864.8606.


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