SEC Director Robert Khuzami has asked Congress for an increased budget, citing the agency’s need for additional trial lawyers and staff to handle a large increase in cases. After Chairman Mary Schapiro took over as head of the SEC, new investigations have surged 32% since the end of January. Director Khuzami provided his request in written testimony to a Senate subcommittee overseeing the securities industry. He pointed out that compared with a year earlier the agency has gone to court almost four times as often to seek emergency orders to halt misconduct. The newly-appointed director made this most accurate observation:
We must convey to all Defendants in SEC actions that not only do we assemble winning cases against them, but also we are prepared to go to trial and we will win. Without that credible threat, we are at a severe disadvantage.
Khuzami, a former federal prosecutor, is seeking to revitalize a division faulted for missing a number of incidents of fraudulent conduct, including the $65 billion Madoff Ponzi scheme. The director says the agency needs to invest in technology to better analyze data and manage cases and must find ways to free investigators and accountants from tasks that could be handled by less qualified staff. Based on our experience in handling securities cases, there is a definite need for the SEC to rebuild its legal staff and technology investments.
The enforcement division must be able to do its job and handle the increase in cases. In the past, lawyers representing companies against the SEC have generally had more lawyers, more staff, superior technology, and more resources. That must change. The SEC must be able to do its job so investor confidence can be restored. Ms. Schapiro vowed to reinvigorate the enforcement program when she succeeded Christopher Cox, and that is badly needed. She named Khuzami to head the division in late March.
It should be noted that the number of SEC investigative lawyers decreased more than 11% from fiscal year 2004 to 2008, according to the Government Accountability Office. Its report faulted previous agency leaders for instituting policies that slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies. It was reported that investigators opened 287 inquiries since the end of January, compared with about 217 a year earlier. SEC lawyers have sought 27 emergency restraining orders, up from seven a year earlier. Commissioners have also issued 138 formal orders of investigation, an increase from 57, granting SEC lawyers more authority to subpoena documents and testimony.
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