Following the massive Madoff fraud, securities regulators have been under fire for their mistakes, misses and lack of regulatory response to signs of fraud in the securities industry. Some heads have rolled and new leadership installed in various departments, and the battle cry of more regulation has sounded. A BusinessWeek article on the SEC's Inspector General report relating to the Madoff fraud explains that the SEC's failures to catch the fraud, despite opportunity, stemmed from a combination of "inexperienced staff, inadequate preparation, bureaucratic inaction, and the simple failure to ask the right questions." SEC Chairman Mary Schapiro, commenting on the report, said, "His report makes clear that the agency missed numerous opportunities to discover the fraud. It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors."
Apologies now out of the way, we can expect increased regulatory zeal from the SEC, and likely from other regulators as well. Robert Khuzami, the new Director of Enforcement for the SEC, recently touted recent statistics on enforcement activities in a speech before the New York City Bar Association. He stated that, "Comparing the period from
late January to the present to roughly the same period in 2008, the
Division has opened 10% more investigations (approximately 525,
compared to 475); has been granted 118% more formal orders (which
grants us subpoena power) (275, compared to 126); has filed 147% more
TROs (52, compared to 21); and has filed nearly 30% more actions (397,
compared to 306)." Khuzami then also addresses some changes within his department, including the creation of some specialized units, and on their goals of being swift to respond to regulatory matters. His speech outlines many regulatory initiatives underway, and is a good read for industry legal and compliance personnel.