SEC Cracks Down On ‘Street’ Crime

Fair warning to all financial finaglers and sundry capital markets crooks.


Fair warning to all financial finaglers and sundry capital markets crooks: The Securities and Exchange Commission seems determined to get tough on Street crime.

The Division of Enforcement has been split into five units to better cover the increasingly complex financial services realm: asset management; market abuse; structured and new products; foreign corrupt practices; and municipal securities and public pension plans. The SEC has also formed a new risk analysis unit, the Office of Market Intelligence, to monitor tips and complaints connected to risky practices. “We will aggressively pursue violations by advisers, including hedge funds,” vows Bruce Karpati, 40, who co-heads the asset management task force and previously oversaw the agency’s hedge fund working group.

Although the regulator acknowledges that the SEC needs new blood and new tools to pursue today’s sophisticated rule breakers, he says it is responding vigorously to the challenge. Under chief Mary Schapiro, the SEC is seeking a 12 percent budget increase from this year’s $1.26 billion.

And the agency is one of the few Wall Street–related organizations that is on a hiring spree. Karpati’s unit is looking for staffers with experience digging into hedge funds, trading and technology. “We’re going to be better able to identify market practices and issues that are harmful to investors,” he says. ”And we’re not going to stop being aggressive.”

The SEC’s get-tough stance is already being felt. Jack Yoskowitz, an attorney at Seward & Kissel in New York, says he has seen an increase in enforcement activities aimed at asset management firms. “The SEC has stepped up enforcement and is going to make sure they don’t become irrelevant,” notes Yoskowitz. Still, a cynic might describe the SEC’s newfound enforcement zeal as an instance of shutting the barn door too late, but with a flourish. “The SEC has done an awful lot of soul-searching,” says Barry Barbash, a former head of the SEC’s Division of Investment Management and now a partner at Willkie Farr & Gallagher in Washington. “From 30 years of experience — six with the SEC — I’ve never seen anything like it.”