SEC to customize sanctions to fit conduct-based violations

140px-US-SecuritiesAndExchangeCommission-Seal.svgThe SEC announced recently that it would begin tailoring sanctions to more closely fit violations as part of an effort to beef up its enforcement authority.

Critics have pointed to the agency’s general policy of imposing broad bans on individuals and companies who break securities law, saying that the current policy is ineffective and poorly enforced, Reuters reports.

The SEC has begun to experiment with penalties that ban certain practices, like providing advice to pension funds or profiting from investment advice seminars.

“We want to use all of the tools available to us to specifically discourage repeat misconduct and go beyond the injunctions we traditionally obtain,” George Canellos, the acting enforcement director at the SEC, said, according to Reuters.

Over the past year, lawyers at the SEC have begun to seek injunctions that ban defendants from certain practices, even if the practices are legal. Under the 2002 Sarbanes-Oxley investor protection legislation, the courts are required to follow through with SEC-recommended penalties.

“We are actively exploring ways to invoke that authority more creatively toward the goal of creating remedies tailored to the misconduct at issue,” Canellos said, Reuters reports.

The SEC has attempted to turn its attention from the financial crisis and focus on cases involving market structure issues and trading. Last year, the SEC recommended that the courts ban a salesman who hosted misleading investment classes from presenting or marketing any future investment presentations.

Former SEC attorneys said that the new model of operation could be applicable to cases involving larger firms but added that some penalties are likely to be challenged by involved parties.

“What is the limiting principle?” Daniel Nathan, a former SEC attorney and current lawyer at Morrison & Foerster, said, according to Reuters. “For a conduct-based injunction, when do you do it, and when not? It’s very hard to draw the line.”

Comments are closed.