Business

SEC’s White: Fines aren’t enough

Wall Street’s top cop on Thursday called for steeper penalties for corporate wrongdoing and vowed to continue to force the worst troublemakers to confess sins.

Mary Jo White, chairman of the Securities and Exchange Commission, said she is supporting legislation introduced last year to give the regulator greater power to penalize wrongdoers.

Currently, the SEC is limited to fines tied to ill-gotten gains, which can often be less than what investors lost, especially in a Ponzi scheme.

Under the proposed, tougher rules, the SEC would be allowed to base its penalty on either the current formula of three-times the ill-gotten gains or the amount of investor losses — whichever is greater.

The proposed legislation, introduced last year by US senators Jack Reed (D-RI) and Chuck Grassley (R-IA), would also let the SEC seek additional penalties for repeat offender.

“These would be very powerful, additional tools,” White said in a speech in Chicago before the Council of Institutional Investors, a coalition of corporate pension funds and other large investors.

White, 65, also vowed to seek to bring more individuals to account for wrongs committed by their corporations or firms — another sore point among the investing public. The SEC has faced widespread criticism for not bringing cases against high-profile individuals responsible for the financial meltdown, for example.

“I have made it clear that the staff should look hard to see whether a case against individuals can be brought,” White said in her talk on Thursday.

“I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in,” she said. “It is a subtle shift, but one that could bring more individuals into enforcement cases.”

A former federal prosecutor, White’s leadership of the SEC, albeit only since April 10, has been marked by a tougher stance against wrongdoers — most notably forcing many to admit their sins.

In the past, individuals and companies were allowed to settle probes and lawsuits without admitting or denying wrongdoing.

White ticked off some instance where admissions of wrongdoing were the right path to settle cases. They include:

  •  Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
  • Cases where the conduct posed a significant risk to the market or investors.
  • Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
  •  Cases where reciting unambiguous facts would send an important message to the market about a particular case.

In 2011, Judge Jed Rakoff set off a firestorm when he blocked the SEC’s $285 million deal with Citigroup because he was concerned that the deal didn’t hold anyone accountable. The SEC appealed his decision and a decision is pending.

White, meanwhile, has moved full speed ahead on this popular new initiative, despite just being sworn in as chair of the SEC in April. This summer, she forced Phil Falcone to admit to an improper loan from his hedge fund Harbinger Capital to pay his taxes, among other violations.

And the SEC just last week forced banking giant JPMorgan to admit it violated securities laws tied to massive losses in 2012 through what’s become widely known as the “London whale” trades.