SEC Revamps Enforcement and Makes Other Changes

The Securities and Exchange Commission has been revamping itself, buttressing enforcement efforts and taking a series of initiatives to protect investors in the wake of the financial crisis and massive Madoff fraud, the agency's chairman said Tuesday.

AP

The agency has undergone fundamental changes "that will reinforce our focus on investor protection and market integrity," SEC Chairman Mary Schapiro said.

Appointed by President Barack Obama, Schapiro took the helm in January of an agency demoralized and widely assailed over its failure to detect Bernard Madoff's Ponzi scheme for many years despite red flags.

The SEC also was criticized by lawmakers and investor advocates for its oversight of Wall Street investment banks in the period leading up to the financial crisis that erupted last year.

"In the wake of the Madoff fraud, I believe we owe it to investors to show them that we can and will adapt our ways and learn from our past errors so that we do not repeat them," Schapiro said in testimony prepared for a hearing by the House Financial Services subcommittee on capital markets.

Schapiro has taken steps aimed to strengthen and speed the agency's enforcement efforts and installed a new enforcement director.

A series of regulatory actions by the SEC commissioners in recent months have included restricting short-selling in down markets, strengthening oversight of mutual funds, tightening scrutiny of investment advisers and making it easier for shareholders to seat directors on company boards.

Schapiro said that restraining short-selling was the most widely and fiercely debated issue that has come before the agency during her tenure. The SEC has opened a public discussion on possible ways to restrict the practice of making trades that bet against a stock, which is legal and widely used on Wall Street.

Investors and lawmakers have clamored for limits on moves they say worsened the market's downturn. Short-selling involves borrowing a company's shares, selling them, then buying them back when the stock falls and returning them to the lender. The short seller pockets the difference.

The SEC also is working to identify emerging risks to investors, including so-called "dark pools," or automated trading systems that don't publicly provide price quotes, Schapiro said.

"Given the potential risks posed by dark pools, the (SEC) will take a serious look at what regulatory actions may be warranted to respond to the potential investor-protection and market-integrity concerns that dark pools may raise," she said.

Last week, the Obama administration sent Congress legislation designed to protect investors by bolstering the SEC's authority. The proposal is part of the sweeping plan for overhauling the U.S. financial rule book that the administration is pressing lawmakers to enact to help avert another meltdown. It seeks to put investment advisers providing services to retail investors and stockbrokers under the same standards of conduct, and to strengthen rules governing the timing and quality of disclosures by investment funds.

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