SEC double-counting enforcement stats? Say it ain’t so!

by Kurt Schulzke

Full disclosure is an SEC article of faith. Right?  The agency that wields Rule 10b-5 and Rule 12b-20 — “don’t omit material facts,” “don’t employ any device, scheme, or artifice to defraud,” “don’t be evil,” (whoops! how’d that get in here?!) — must be filled with true believers. Or so we hope.

A recent Bloomberg analysis, “SEC Enforcement Story Doesn’t Add Up for 2011,” hints at corporate governance problems at the SEC.  Seems that some top SEC officials — Enforcement Director Robert Khuzami and SEC Chair Mary Schapiro — may not be walking the walk.

More specifically, in touting the SEC’s record 735 “matters filed” in 2011, they’ve counted 230 matters that began in a prior year.  Quicky excerpt:

SEC Enforcement Director Robert Khuzami said in November that the unit filed 735 actions in fiscal 2011, “a record- breaking performance during a period of resource constraints.” Citing the numbers, SEC Chairman Mary Schapiro told a Washington conference last week that the agency’s changes “are already producing record results.” The SEC also noted the record numbers in justifying its 2013 budget request to Congress…

Still, more than 230, or 31 percent, of the 735 matters weren’t new…

For example, Mark Kurland, was sued by the SEC in October 2009 in connection with the Galleon insider trading case. Kurland pleaded guilty to criminal charges in May 2010 … In February 2011, the SEC submitted a four-page follow-on action barring Kurland from association with any investment adviser. That was added to the division’s tally.

[Similarly,] the SEC sued John Scullin in May, claiming he falsely represented himself as an accountant licensed to practice in Virginia. Days later, after the court entered a final judgment against Scullin, the SEC filed a follow-on administrative order to suspend him from practicing as an accountant before the agency. The SEC counted both actions in the 2011 results.

The truth, as they say, is complicated.


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