2009 Year In Review: SEC And SRO Selected Enforcement Cases And Developments Regarding Broker-Dealers

The Morgan Lewis Securities Litigation and Enforcement Practice has published an outline highlighting selected U.S. Securities and Exchange Commission (SEC or the Commission), Financial Industry Regulatory Authority (FINRA), and NYSE Regulation enforcement actions and developments regarding broker-dealers during 2009. This LawFlash provides an executive summary of this year's publication. The full 2009 Year-In-Review Outline can be found at http://www.morganlewis.com/pubs/LIT_SECandSROYearlyReviewWP_Jan2010.pdf (http://tinyurl.com/y85n9sv ).

The economic crisis of 2008 and Bernard Madoff's Ponzi scheme led government officials, the public, and the media to call for an increase in securities enforcement activity. As a result, 2009 was a year of change at the SEC and FINRA.

The SEC installed new leadership who perceived a mandate to restore investor confidence by aggressively pursuing companies and individuals who engage in wrongdoing affecting the securities markets. The Commission's new leaders instituted a number of organizational and policy changes intended to make its Division of Enforcement more efficient and effective. Many of the metrics used to measure SEC enforcement activity reflect a significant increase compared to 2008.

With its own new CEO in place, FINRA also looked to make changes in its structure and enforcement processes. It did so last year, but perhaps in less noticeable and transformative ways. In 2009, FINRA's caseload increased; it also brought several actions with large fines, in stark contrast to the prior year.

Consistent with its more focused mandate, NYSE Regulation concentrated on trading and transaction reporting in its major cases and instituted fewer actions than the SEC and FINRA.

These developments are described in detail in the Outline; the major issues are summarized below.

Key Enforcement Developments at the SEC

In 2009, the SEC went through enormous changes. At the top of the list was the new leadership installed at the Commission. In January 2009, Mary L. Shapiro was appointed and confirmed as the new SEC Chairman. Among other senior personnel moves, Chairman Schapiro recruited Robert Khuzami, a former federal prosecutor, to head the Division of Enforcement. The Commission subsequently hired several other former criminal prosecutors to help Mr. Khuzami lead the SEC's enforcement efforts, including a new Deputy Director and new heads of the Commission's New York and Miami regional offices.

Organizationally, the Division of Enforcement announced plans to develop certain specialized investigative units, streamline management, and create an office responsible for dealing with complaints, tips, and...