Monthly Archives: October 2011

October 3, 2011

SEC’s Enforcement to Bring “Negligence Only” Cases?

On Friday, this WSJ article created a stir regarding a possible change in strategy by the SEC’s Enforcement Division and how it brings cases. Here’s an excerpt from the article:

Securities and Exchange Commission officials are trying to make it easier on themselves to hold more individuals responsible for wrongdoing during the financial crisis. In a major shift from the agency’s traditional enforcement strategy, the SEC could file more civil cases in which defendants are accused of negligence only, rather than harder-to-prove charges of intentional wrongdoing or recklessness, according to SEC officials.

In the past, the SEC sometimes persuaded individuals to agree to narrow negligence charges in order to settle the case, rather than fight the agency in court over more-serious allegations, according to defense lawyers. The SEC generally wasn’t willing to risk a courtroom defeat if the only allegation was negligence. The penalties for negligence typically are much less harsh than for intentional fraud, with smaller fines and less risk of a ban from working in the financial industry. A charge of negligence also can result in less reputational damage for a defendant than outright fraud.

So far, the strategic change has been evident in just one major enforcement action. But a flurry of negligence charges is possible as the agency pushes ahead with its investigations of Wall Street’s behavior before and during the financial crisis, according to SEC officials.

SEC’s Inspector General: The Mark Cuban Report

On Friday, the SEC’s Inspector General issued this report absolving the Staff of any misconduct during the insider trading investigation of Mark Cuban. As I blogged a few years ago: “a complicated aspect of the Cuban case is the strange involvement of a SEC Enforcement Staffer who hadn’t been working on the investigation into Cuban’s alleged insider trading – but yet felt compelled to send emails to Cuban about various aspects of his life while the case was being put together. This eventually led to Cuban responding to this rogue Staffer via email, copying then-SEC Chair Chris Cox.”

On Friday, the SEC’s IG also released his report relating to the payment of living expenses of Henry Hu – and reimbursing the University of Texas for what Henry would be making there – for his one-year stint as head of RiskFin…

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– Broc Romanek