2 June – LAWFUEL – The Law News Network – During Chairman Donaldson’s two-and-one-half year tenure as SEC Chairman, the Commission has vigorously pursued the following goals:
Improving disclosure and transparency for investors so that they can make more informed investment decisions.
Protecting investors by helping to eliminate conflicts of interest and the opportunity for self-dealing by brokers, investment advisors, market makers and other market intermediaries.
Detecting, punishing, and deterring wrongdoing and securities fraud.
Transforming the SEC to reach a new level of effectiveness in accomplishing all these things by instilling a more anticipatory, proactive, cooperative internal culture.
KEY ACCOMPLISHMENTS DURING CHAIRMAN DONALDSON’S TENURE:
The Commission has made a tremendous amount of progress in the past two-and-one-half years – aggressively pursuing all four goals simultaneously. Following are summaries of the top accomplishments:
1. Took the necessary steps to right the troubled launch of the PCAOB.
§ Oversaw the appointment of a widely-respected Chairman of the PCAOB.
§ Revised the Commission’s rules of practice to specify procedures relating to the PCAOB.
§ Oversaw the process for PCAOB funding.
§ Reviewed and approved the rules of conduct for the PCAOB’s operations.
2. Ensured completion of Sarbanes-Oxley Act rulemaking and improved disclosure requirements intended to promote the integrity of public company financial statements.
§ Supported a number of additional rules designed to improve financial statement disclosures (including improved MD&A discussions and expanded current reporting of material developments).
§ Overhauled disclosure review program to target resources based on an assessment of risk, putting the agency in a position to comply with the “once-every-three-years review cycle”, as required by SOX.
§ Proposed and adopted a comprehensive set of Commission rules for registration, disclosure and periodic reporting for asset-backed securities.
3. Spearheaded initiatives on SRO governance and market structure.
§ Initiated a wholesale reevaluation of SRO governance and prompted dramatic improvements in the governance structure of the SROs, most notably in the governance of the NYSE.
§ Led the initiative to address long-standing market structure issues, including the adoption of Regulation NMS, which modernized and updated the regulation of the national market system for equity securities and is helping to spur more electronic trading at the NYSE.
4. Reformed the mutual fund industry through a series of broad-based initiatives. Taken together, all these reforms are restoring investor confidence in the mutual fund industry.
§ Strengthened the mutual fund oversight and regulatory framework to minimize the possibility of potential abuse in the future, including a requirement that mutual funds have an independent chairman.
§ Led a prompt and multi-pronged response to the mutual fund scandal through aggressive enforcement activity, broad-based and targeted examinations and revision of regulatory requirements.
5. Adopted a rule that, for the first time, will require hedge fund managers to register under the Investment Advisers Act of 1940.
§ Hedge funds are a rapidly growing asset class, approaching $1 trillion in size – increasing an estimated 260% in the last 5 years.
§ A prime example of the Commission’s new regulatory approach of getting out in front of emerging issues, rather than reacting after a problem has occurred and investors have been harmed.
6. Strengthened the SEC’s enforcement and examination programs.
§ Urged strong enforcement action to deal with malfeasance in the securities industry, including the mutual fund industry.
§ Obtained $3.3 billion in penalties and disgorgement in FY04 and $2 billion in FY03, the largest two annual totals in the agency’s history.
§ Refocused the Commission’s inspection and examination program to emphasize a proactive, risk-based approach for detecting wrongdoing, and added significant numbers of additional staff.
§ Eliminated the multi-year backlog in Commission adjudication of administrative appeals and reinvigorated the Commission’s amicus curiae program.
7. Transformed the SEC to reach a new level of effectiveness in accomplishing its duties
§ Launched the Office of Risk Assessment and risk assessment functions throughout the agency which enable the agency to increase awareness of emerging risks.
§ Focused on “breaking down the silos” to increase communication and coordination between offices and divisions.
§ Dramatically increased and improved the use of technology throughout the Commission.
§ Oversaw the hiring of an unprecedented number of new employees.
SNAPSHOT OF STATISTICS: Updated May 2005
Considered 50 proposed rules and adopted 59 final rules.
2003 15 22
2004 32 29
2005 3 8
Created a structure for assimilating a nearly 40% increase in SEC staff and hired 1234 new employees
FY 03 (Dec – Sep) partial yr 349
FY 04 (Oct – Sep) full yr 678
FY 05 (Oct – April) 207
Chairman Donaldson testified at 22 separate congressional hearings. Collectively, the Chairman and SEC staff have testified 46 times since February 2003.
2003 13 12
2004 4 8
2005 5 4
Total 22 24
· Prosecuted more than 1,700 enforcement actions – marking the two highest annual totals in the agency’s history
FY 2003 679
FY 2004 639
FY 2005 398 (as of 5/23/05)
· The Commission authorized more than $7 billion in penalties and disgorgements.
FY 2003 $ 2 billion (source ’03 Annual Report)
FY 2004 $ 3.3 billion
FY 2005 $ 2.4 billion (as of 5/23/05)
· The Top Ten disgorgement/penalty cases in ’03 and ’04:
Worldcom — $750 million
Adelphia — $715 million
Bank of America — $375 million
Invesco & certain Invesco officers — $325.8 million
Quest — $250 million
Alliance — $250 million
Pilgrim Baxter & Assoc. — $250 million
Massachusetts Financial Services — $225.6 million
Citigroup — $208 million
Citadel Securities Corp — $164 million
Bristol Myers Squibb $150 million
Finalized global settlement of analyst conflict of interest charges involving nation’s largest investment banks