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Highlights

The Securities and Exchange Commission's (SEC) Division of Enforcement (Enforcement) plays a key role in meeting the agency's mission to protect investors and maintain fair and orderly markets. In recent years, Enforcement has brought cases yielding record civil penalties, but questions have been raised about its capacity to manage its resources and fulfill its law enforcement and investor protection responsibilities. GAO was asked to evaluate, among other issues, (1) SEC's progress toward implementing GAO's 2007 recommendations; (2) the extent to which Enforcement has an appropriate mix of resources dedicated to achieving its objectives; and (3) the adoption, implementation, and effects of recent penalty policies. GAO analyzed information on resources, enforcement actions, and penalties; and interviewed current and former SEC officials and staff, and others.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
United States Securities and Exchange Commission To help ensure that SEC is effectively and efficiently using its resources in bringing enforcement actions, and that its enforcement policies are working effectively, the SEC Chairman should, to help ensure effective and efficient operation of the Office of Collections and Distributions, consider an alternative organizational structure and reporting relationship for the office, to address the organizational concerns identified.
Closed - Implemented
The SEC Chairman agreed with our recommendation, and the Division of Enforcement has reported that in a subsequent review, the division has determined that it needs the position of Chief Operating Officer/Business Manager for Enforcement, in order to manage the Office of Collections and Distributions, among other tasks. According to the division, the position has been advertised, the posting closed, and the position is expected to be filled by 9/30/09.
United States Securities and Exchange Commission To help ensure that SEC is effectively and efficiently using its resources in bringing enforcement actions, and that its enforcement policies are working effectively, the SEC Chairman should, as part of ongoing efforts to explore the more effective use of resources, and to streamline internal review of cases and investigations, expand Enforcement's current examination of its methods to include the level and mix of resources available to investigative staff in the areas of administrative and paralegal support, specialized services and expertise, and information technology support; and include in the examination an evaluation of the impact of the case review process on organizational culture factors such as risk aversion and incentives to drop or narrow the scope of cases.
Closed - Implemented
The SEC Chairman agreed with our recommendation, and the Division of Enforcement has reported that a number of actions have been taken: (1) The Director of Enforcement has conducted a top-to-bottom review of the division's processes and organizational culture. (2) The Director has determined that the highest-impact use of any additional funding will be to hire employees with specialized industry experience; hire additional trial lawyers; and hire additional non-attorney, non-accountant support staff, including information technology staff, paralegals and others. (3) The Commission has delegated "formal order" authority to the Director, which will allow the division to more quickly begin investigations. (4) The Director plans to restructure the division to include specialized investigative groups. (5) A level of management review -- by "branch chiefs" -- has been eliminated, in order to provide more staff to work on investigations and to increase efficiency of the internal case review process. (6) The division is creating an Office of Market Intelligence, which will be responsible for collecting, analyzing and monitoring the many thousands of complaints, tips, and referrals the division receives each year. (7) The division is developing improved metrics for measuring productivity and performance. Reflecting these changes, the division reports that staff requests have been made to Congress for the FY 2011 budget, as well as for additional positions for FY 2009 and FY 2010.
United States Securities and Exchange Commission To help ensure that SEC is effectively and efficiently using its resources in bringing enforcement actions, and that its enforcement policies are working effectively, the SEC Chairman should examine the effects of the 2006 corporate penalty policy to determine whether the policy is achieving its stated goals and any other effects the policy may have had in adoption or implementation.
Closed - Implemented
The SEC Chairman agreed with our recommendation, and the Division of Enforcement has reported that it plans to submit a recommendation to the Commission, concerning application of the 2006 penalty policy, by September 30, 2009. Toward that end, the division reported that in April 2009, it began examining alternative approaches for applying the policy, and in June 2009, circulated a formal recommendation to the Office of the General Counsel for review and comment. As of early May 2013, the Enforcement Division continues to discuss with the Commissioners' staff whether the current policy and its current application are achieving the Commission's stated goals, and to evaluate alternative approaches.
United States Securities and Exchange Commission To help ensure that SEC is effectively and efficiently using its resources in bringing enforcement actions, and that its enforcement policies are working effectively, the SEC Chairman should take steps to ensure that the Commission, in creating, monitoring, and evaluating its policies, follows the agency strategic goal and other best practices for communication with, and involvement of, the staff affected by such changes.
Closed - Implemented
The SEC Chairman agreed with our recommendation, and in March 2009 hired a new Director of Enforcement. The Division of Enforcement reports that the Chairman and the Director have worked together to create a "climate of communication." The Director has held several "town hall" meetings with division staff, to outline future plans, explain a restructuring of the division, and ensure that management and staff were both represented on advisory groups formed to assist in these efforts. Ten advisory groups have been formed to make recommendations on the division?s structure and internal processes. According to the division, the Director will continue to have town hall meetings and to seek staff input.

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