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SEC's 'aggressive' focus on wrongdoing to continue: SEC official

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NEW YORK — The U.S. Securities and Exchange Commission's enforcement division never has had as “clear and strong” a message as it has now with the support of its new leader to be as “aggressive and creative” as it wishes, an SEC official said.

There have been significant advances in technology, investigative techniques and risk assessments under SEC Chair Mary Jo White, Sharon B. Binger, assistant regional director of the SEC's New York regional office, said Tuesday during a session at the Professional Liability Underwriting Society's annual directors and officers symposium in New York.

The SEC has hired experts who are more proactive in detecting fraud, and the agency has taken steps to encourage insider cooperation with its whistle-blower program. That is “changing the landscape of how we do our business” with an enhanced risk assessment that “makes us smarter in terms of how we identify and pursue fraud,” Ms. Binger said.

One SEC initiative has been to focus on corporate “gatekeepers,” including board members, auditors and lawyers, Ms. Binger said. This initiative focuses “on people who can prevent fraud” if they are properly doing their jobs in certain circumstances, Ms. Binger said.

During the session, Ms. Binger also discussed the SEC's policy of seeking admissions of wrongdoing by parties with whom it settles litigation alleging violations of securities law.

Certain types of cases “may require admissions,” including misconduct that harms a large number of investors or places them at risk of serious harm; where an admission safeguards against risks to the public; and where it is important to send a message to the market, Ms. Binger said.

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In cases where the party is not willing to make an admission and the commission feels it is appropriate, “we will litigate” to secure the public accountability through a hearing of the facts, she said.

An admission required by the SEC could affect other legal proceedings, said Kevin LaCroix, an attorney and executive vice president at Beachwood, Ohio-based RT ProExec, a division of R-T Specialty L.L.C., who moderated the session. He asked if the SEC has taken this into account.

“That's not really a concern of the SEC,” Ms. Binger said. The extent to which an admission can be used in related proceedings is up to the courts to decide. “Our intent is obtaining admissions,” she said.

This policy is “going to create some very interesting settlement dynamics” in terms of civil litigation, said R. Damian Brew, New York-based director of Marsh Inc.'s FINPRO unit.

It puts pressure on defense counsel to make sure an admission is “as limited as possible,” said Joseph C. Finnerty III, a partner at law firm DLA Piper (US) L.L.P. in New York.

There “has been lot of flux in the regulatory enforcement landscape over the last couple of years,” fueled by public outrage over the financial crisis, Mary L. McIvor, global head of financial institution claims at American International Group Inc. in New York, said during the session.

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Politicians have called for legislation in response to issues created by the financial crisis, but that process takes a while, she said. In the meantime, she said pressure has been put on regulators to hold those responsible for the financial crisis accountable for their actions.

As regulators have looked to fulfill that mission, they have started with the regulations at hand, and have developed new ways of working and new structural tools, Ms. McIvor said.

“One of the most important changes we've seen is the holistic approach” regulators have taken, which involves looking “vertically and horizontally” not just at specific regulations, but also at conduct, she said. Regulators are looking at “whether that conduct seems inherently wrong” and, if so, finding existing legislation that addresses it, she said.