Enforcement lawyers at the Securities and Exchange Commission have recently been dressed down by Congress, blamed for major investment bank failures and publicly criticized for missing the alleged frauds of financiers Bernard Madoff and R. Allen Stanford.
And still, they’re in the best mood they’ve been in for years.
“There’s a sense of the lifting of spirits,” says Elisse Walter, one of the SEC’s two Democratic commissioners.
Since being sworn in as chairman Jan. 27, Mary Schapiro has rolled back a number of rules created by her predecessor, Christopher Cox, that critics say hindered the enforcement process. She’s also tapped a new enforcement chief, Robert Khuzami, a veteran federal prosecutor and, most recently, general counsel for the Americas at Deutsche Bank. Most importantly, say current and former Enforcement Division lawyers, Schapiro has reinvigorated the staff’s morale by urging them to aggressively pursue investigations.
Under Cox, “the guiding principle was slow it down, shut it down, find a way to bog it down,” says a lawyer in the division, who spoke on condition of anonymity because he still works there and did not have permission to speak to the media. “We are now being given the tools, the ability, and the discretion to use our good judgment.”
By giving enforcement lawyers more freedom to negotiate penalties and streamlining their ability to invoke subpoena power, Schapiro is handing more authority back to the rank-and-file. During Cox’s tenure, from 2005 until he stepped down in January, the commission built a reputation as slow-moving and less inclined to assess high penalties against corporations. Former and current enforcement lawyers say cases were held up by Cox’s insistence on a unanimous vote from commissioners before moving forward.
The change in leadership at the SEC is also rippling through the private bar. Legal recruiters say law firms are suddenly having trouble luring lawyers out of the Enforcement Division, which had been hemorrhaging talent. In a recent speech, SEC Commissioner Luis Aguilar said the number of attorneys investigating cases in the division fell from 654 in 2005 to 594 in 2008. But now that they have more freedom to hunt down corporate wrongdoing, recruiters say enforcement lawyers are eager to stay where they are. And private practice defense attorneys say their jobs could get a lot tougher as investigations mushroom under the new management.