LETTER FROM AMERICA AUTUMN 2009 INFORMED

How tough is the new SEC?

In his latest column from New September, but regardless of that partic- ular outcome, the swords of critics con- York, Michael J Reilly assesses letter from tinue to flash around the new SEC. the recent moves by the US America Appointed just as the world was dis- regulatory body under its new covering the huge fraud chairman Mary Schapiro. early this year, SEC chairman Mary Schapiro told questioners at congression- al hearings in June that she would be s the Securities and Exchange Goldstein reported that the bank’s attor- tough on wrongdoers. ICommission (SEC) as tough as it says it ney said BofA does not believe it did any- “If Schapiro wants to show she means is? More than one market commentator thing wrong in failing to disclose to business at the SEC, she can go back and says no, despite the engagement by govern- investors that Merrill paid big bonuses to get BofA to admit to some wrongdoing as ment securities law enforcers with some of some of its employees. part of a settlement. And if that admis- the best-known names in American busi- sion exposes the bank to shareholder lia- ness, including Bank of America and its Transparency bility that’s okay,” Goldstein wrote. “If Merrill Lynch acquisition, General The federal judge overseeing the case, we want Wall Street bankers to start Electric and AIG. Jed Rakoff, told the SEC that its case changing their behaviour, there has to be The naysayers argue that most of the lacked transparency from the start. The some real consequences for their mis- high profile action has not had the bite judge asked why, given the “serious ques- deeds. that will get the attention of potential tions” raised in its complaint, hadn't the Granted, the Madoff case saw an indi- future miscreants. Specifically, the SEC SEC gone after more facts? And if BofA vidual taking the full brunt of punish- should be taking individuals to the bar of of Charlotte, NC, and Merrill of New ment, but that was a one-off; there was justice to admit wrongdoing, not simply York conspired to lie to shareholders no big corporate entity wrapped around letting the corporate entities they run pay about bonuses that had been agreed to him. a fine with no admission of wrong-doing, when the merger was signed, then why a long-standing means of ending securi- didn't the SEC try to figure out exactly Broadside ties law cases. who lied? Taking another shot at the SEC’s Reuters columnist Matthew Goldstein In the event, while the SEC announced attempts to show its effectiveness, the made the point in early August when he it had a settlement, the judge said he well-followed web blog, Huffington Post wrote about the SEC’s proposed $33m wasn’t prepared to approve it, partly also weighed in at mid-summer. Its settlement with BofA, which he termed because of his concerns stated above. broadside cited both the BofA agreement “nothing more than business as usual for They were all due back before the judge and settlement of a two-year old GE case the nation’s top securities cop.” with more information in hand in early with a $50m dollar fine. “Entities don't do bad stuff. People do bad stuff," the blog post quoted Lynn Turner, former chief accountant for the The naysayers argue that it should not SEC as saying. "To stop that, people need to know the SEC is going to come simply let companies pay fines with no down on them like a ton of bricks." It is probably a bit too early, however, admission of wrongdoing for any judgment to be made about the new SEC administration. Schapiro only completed a top level shuffling of staff as the summer began, ousting the former head of enforcement and others who were excoriated in spring congressional hearings for missing the Madoff fraud over many years. The new brooms, in turn, were still moving people and changing structure as Mike Reilly provides advice on markets Labor Day approached. Nonetheless, and communications through Hally activity had picked up sharply. There was Enterprises Inc and its writing and a 30% increase reported in enforcement editing division, Globalwriters. actions through early August, and the Skype address: GLOBALWRITER number of investigations opened was up [email protected] 10%, at 525. At that rate, by year’s end

10 IR SOCIETY INFORMED AUTUMN 2009 LETTER FROM AMERICA

the Schapiro team could well exceed the SEC’s previous annual record of 679 The Foreign Corrupt Practices group investigations opened in 2003. Schapiro chose an aggressive prosecu- will step up cooperation with non-US tor to head up enforcement, , who brought with him a repu- enforcement entities tation for focus and determination. He recently declared sweeping changes which, among other things, bring unprecedented decision-making to the enforcement staff. Khuzami is also set- the critics who say out-of-court agree- “We charged former Countrywide ting up several teams to probe trading ments are too easy on companies. Financial CEO Angelo Mozilo and two and asset management issues, while “It is imperative that we convey to all other former executives with fraud for another will have a laser-eye on interna- defendants in SEC actions that we are allegedly deliberately misleading tional company activities. prepared to go to trial and we will win, as investors about the significant risks it was This last one is designated the Foreign evidenced by our eight trial wins since undertaking,” Khuzami said. “In public, Corrupt Practices group, named after a April, including jury verdicts against the Countrywide portrayed itself as under- US statute which prohibits companies former CEO of K-Mart for financial writing mainly prime quality mortgages, from involvement in the bribing of gov- fraud and a mutual fund manager for while concealing that the loans it actual- ernment officials. It will not only focus ,” Khuzami told the New ly was taking on were so risky that Mozilo on such violations, but will step up SEC York Bar in an address August 5. privately described them as ‘toxic’." cooperation with non-US enforcement He also emphasized that – contrary to We need a bit more time to know just entities. the critics mentioned earlier – individuals how much bite the new watchdogs will In a move Khuzami candidly describes have indeed been singled out under his bring to stock regulation, but it behooves as a credible threat to go to court, the watch. all players to pay close attention to the enforcement division’s Trial Unit is get- Discussing several, the enforcement unfolding actions of the fresh “top cops” ting new resources – a clear rejoinder to director detailed one high-profile action: at the SEC. ■

The IR Society welcomes new members...

The IR Society is pleased to welcome the ... and congratulates Chua Zee Quin – Sunway Holdings following new members (the list shows CIR candidates Incorporated Bhd those who joined up to mid-August): Tan May Yee – Genting Bhd Carmen Chin How Mun – Kwantas Jessica Anderson – Deutsche Bank The IR Society would like to congratulate Corporation Bhd Morgan Bone – Hammerson PLC the following candidates who recently passed Tan Peck Meng – Lauren Colgrave – Financial Times the Certificate in Investor Relations (CIR): Linda Chin Woon Fui – RCE Capital Douglas Connon – Alliance Trust Jared Tan Kong Guan – Sunway City PLC Lucy Fallon – JunctionRDS Ltd Bhd Jane Flynn – Hochschild Mining Lourens Kavelaars Keow Mei Lynn – ZJ Advisory Sdn Bhd Laura Folley – Rentokil Initial PLC Yap Sooi Mee – Hai-O Ent Bhd Chris James – Nyrstar The IR Society would also like to Raziff Shaaban – Hektar Asset Koichi Kashimoto – Dai-ichi Life congratulate the first candidates from the Management Sdn Bhd International (Europe) Ltd Malaysian IR Association (MIRA) who Siew Pui Fun – Help International Leonard Kelly – Financial Times have successfully passed the CIR exam: Corporation Bhd Iain Lanaghan – Faroe Petroleum Erik Wallace – 8Iris Communication PLC Tang Liew Yen – Furniweb Industrial LLP ■ Sebastien Martel – Sanofi-aventis Products Bhd Kim McNeill – Prostrakan Group Melissa Liew Lay Kim – Industronics Certificate in Investor PLC Bhd Relations Steven Mitchell – Tayburn Thomas Hii Khing Siew – Jaya Tiasa The CIR is the UK’s foundation-level John Paul Murphy – Imprima Ltd Holdings Bhd professional qualification for IR Michelle Rees – Cadbury PLC Tew Hu Si – Mah Sing Group Bhd practitioners and has been updated to David Rees – National Grid Loh Poh Im – Minetech Resources Bhd include the recent changes to the Neil Reynolds – Emperor Design Tong Sheau Wei – My EG Services Bhd Companies Act, as well as details on Consultants Limited Ismarita Ismar – Sapuracrest Petroleum the Alternative Investment Market Richard Simpson – Tayburn Bhd (AIM) rules. For further information, Edward Stanger – First Protocol Teoh Teik Kean – Scanwolf Corporation please contact Rachael Simmonds – Diane Walker – TDR Capital LLP ■ Bhd [email protected]

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