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1. Securities Insight: Securities Enforcement
“Cop on the beat,” “broken windows” and bringing “the SEC’s swagger back.” These are some of the more
colorful catchphrases SEC Chairman Mary Jo White and Co-Enforcement Director Andrew Ceresney
have used to describe the Commission’s recent renewed emphasis on enforcement. As part of this get-
tough attitude, the Commission has announced several new areas of focus, along with a handful of specific
initiatives. It has even adopted some new philosophical approaches to enforcement. For example, citing
the importance of accountability and “sending a message,” the Commission will take a harder line on
allowing defendants to settle without admitting wrongdoing. And it will be more aggressive in its pursuit of
“gatekeepers”—individuals such as auditors and in-house counsel who, though they haven’t masterminded
the crime, are arguably complicit by their failure to report red flags. Finally, the “broken windows” philosophy
holds that no infraction is too small to be prosecuted—that tolerating even petty misdeeds “can foster a
culture where laws are increasingly treated as toothless guidelines.”
Below are three areas to keep an eye on in the arena of enforcement in 2014 and beyond.
Top three recent issues
1. Foreign Corrupt Practices Act (FCPA) Enforcement
A recent World Bank report notes that U.S. regulatory agencies prosecute the majority of violations involving foreign bribery,
corruption and lax internal controls—prompting some to speculate that the countries in which those violations occurred
should and will become more active on the prosecution front. Be that as it may, the SEC is not slowing down, and indeed
has recently stepped up enforcement of the Foreign Corrupt Practices Act (FCPA). High-profile, high-dollar settlements
during the last year have included Alcoa ($380 million), Weatherford International ($250 million) and Hewlett-Packard ($108
million). In a more recent case, the Commission partnered with the FBI as well as the Department of Justice to investigate
and prosecute FCPA violations by Smith & Wesson Holding Corporation. The Massachusetts-based arms manufacturer
agreed to pay $2 million to settle the case, despite hauling in only $100,000 as a result of its unlawful practices. “This is a
wake-up call,” said an SEC Enforcement Division official, “for small- and medium-size businesses that want to enter into
high-risk markets and expand their international sales.”
2. Municipal Securities
Another area of recent enforcement emphasis is municipal bond offerings, especially with respect to continued disclosure
required under Rule 15c2-12. The Commission is taking a two-pronged approach: pursuing violators on the one hand, and
on the other inviting municipal securities issuers and their underwriters to come clean with recent disclosure violations in
exchange for a mere slap on the wrist, in a program called the Municipalities Continuing Disclosure Cooperation (MCDC)
Initiative. Meanwhile, the SEC levied its first fine against a municipal issuer in November 2013 (the underwriter was also
charged and fined), and has recently brought actions against the states of Kansas, New Jersey and Illinois, focusing on
whether municipalities were properly disclosing material pension liabilities.
3. Microcap Fraud
In a move that could be understood as a corollary to its “broken windows” approach to enforcement, the Commission
has created a task force to monitor fraud and other misconduct related to “microcap” securities—penny stocks and the
like, traded on over-the-counter exchanges and offered by obscure issuers with few assets. While insisting that its top
priority is still to go after the big fish, the SEC proposes to reinvigorate its pursuit of bottom feeders—those who prey on
less sophisticated investors, often through misleading and manipulative promotion. A salient example is the SEC’s recent
investigation of Cynk Technology Corp., a self-declared social network company that hit the $6 billion valuation mark despite
having no assets, no revenue and one nominal employee. While old-fashioned penny stock fraud has plagued the markets
for decades, the advent of the Internet and social media has arguably made the investing landscape more susceptible to
microcap abuses.
Lexis®
Securities Mosaic®

2. In Legal Practice
From preliminary investigations to grand jury convictions, securities litigation and enforcement
attorneys must keep up with regulatory changes, understand the practical application of those
changes, anticipate potential enforcement actions or exposure to risk, and be prepared to draw from
the best arsenal of defense strategies when actions do come. Being well-positioned to do those things
requires easy access to current, relevant rulemaking releases, guidance materials, and investigation and
enforcement data so that trends can be analyzed and best practices modeled.
Attorneys representing issuers or underwriters of securities offerings must advise their clients on
how to prevent enforcement actions in the first place by ensuring compliance with all regulatory
requirements. They should help clients ensure that required disclosure documents, including SEC
filings, identify and adequately describe any potential risks to shareholders associated with possible
enforcement activity, and also disclose as necessary or prudent, any ongoing such activity.
How Lexis®
Securities Mosaic®
Resources Can Help
1. Foreign Corrupt Practices Act (FCPA) Enforcement: Use our SEC Enforcement Defendant Search
page to pull FCPA violations by defendant name, type or position; date; and penalty and relief informa-
tion. Cross-search SEC and DOJ enforcement releases regarding FCPA violations, or set up real-time
alerts by using searching and alerting functionalities within our Laws, Rules, & Agency Materials. Locate
public companies’ disclosure of pending or ongoing FCPA investigations through the Investigations
search page. Read FCPA decisions and opinions from the federal appellate court and the DOJ. Peruse
blog and law firm memos commentary on FCPA developments, including practice pointers on how to
develop effective internal controls.
2. Municipal Securities: Monitor developments in the MCDC initiative by searching SEC agency news,
speeches, rulemaking releases and guidance materials, plus law firm memos and blog posts. Track
SEC enforcement of Rule 15c2-12 violations. Find prospectuses and certified shareholder reports filed
by muni bond funds via SEC EDGAR®
. Follow proposed rule changes for municipal advisors. Monitor
proposals for reforming the municipal securities market.
3. Microcap Fraud: See how the SEC applies its rules to penny stocks. Monitor developments in the
Microcap Fraud-Fighting Initiative by searching SEC agency news, speeches and guidance materials.
Track agency enforcement under the initiative by searching or setting up real-time alerts on SEC
releases. Determine whether trading in a penny stock issuer’s stock has been suspended or whether a
penny stock issuer has made required periodic filings.
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