Andrew Ceresney, the enforcement director of the Securities and Exchange Commission, will leave the agency by the end of the year. His legacy, summarised in this article, will live on.

His stewardship (2013-16) has led to a record quantity of 'enforcement' activity and monetary remedies. Stephanie Avakian, his deputy, will take over temporarily when he leaves.

During his tenure, the commission embarked on more than 2,850 cases and obtained judgments and orders that imposed more than $13.8 billion in monetary sanctions. It also charged more than 3,300 companies and 2,700 individuals, including many CEOs, finance directors and others. His division refocused its enforcement efforts on financial reporting matters. The division started cases against seven firms operating significant alternative trading systems, including Barclays Capital, Credit Suisse Securities (USA), and AlterNet Securities. It started seven cases under the SEC’s market access rule and pressed the SEC's first ever charges against dozens of hackers and traders in and outside the US for allegedly hacking into multiple newswire services to steal hundreds of corporate earnings announcements and trading on this information before it was publicly released, generating more than $100 million in illegal profits.

Ceresney's division commenced more than 150 'actions' related to insider (and 'abusive') dealing. It commenced a record number of more than 475 actions in relation to investment advisor or investment companies. These actions included a significant 'conflict of interest' case against two JPMorgan wealth management subsidiaries.

Corrupt practices, fixed ratings and pyramid schemes
     
In the fiscal year that just ended, the division began 21 cases involving the Foreign Corrupt Practices Act 1977 – the largest number in the SEC’s history. On the subject of complex financial instruments, Ceresney's division began a "critical customer protection rule" case against Merrill Lynch, the settlement of which involved admissions of wrongdoing and hundreds of millions of dollars in monetary sanctions. It reached a settlement, the first of its kind, with the ratings firm of Standard & Poor’s. It also pressed the first three sets of charges – against UBS AG, Merrill Lynch and UBS Financial Services – involving mis-statements and omissions by issuers of structured notes to retail investors.

Also during his tenure, Ceresney set up the Microcap Fraud and Pyramid Scheme Task Forces, primarily for the benefit of retail investors. At his insistence, the SEC used its temporary trading suspension authority more often and made a point of taking action against 'gatekeepers' (attorneys, accountants, auditors, fund directors, etc.) and habitual offenders in the microcap and pyramid scheme markets.

Ceresney increased the regulator's use of data and data analytics to detect and investigate misconduct. The Centre for Risk and Quantitative Analytics, created in July 2013, helped it in 100 cases against more than 200 people in matters involving insider-dealing, hedge funds and complex financial instruments, and the Market Abuse Unit’s Analysis and Detection Centre has been active as well.
     
The SEC awards Ceresney some credit for the success of its so-called "whistleblower programe," which Compliance Matters has looked at in detail elsewhere. It has now surpassed the $130 million mark for awards, and has received more than 4,200 tips in this fiscal year, up 40% from 2012, the first fiscal year in which it was in place. Ceresney's division reached five settlements of various parties who broke Rule 21F-17 by impeding informants who desired to communicate with the SEC through separation and confidentiality agreements, and pursued two cases involving retaliation [presumably by their employing firms] against them.

The imperative to cop a plea
     
Because of American laws that date back to the presidency of Ronald Reagan, the outcome of every jury trial is loaded from the start by the threat of punitive sentences for anyone who pleads innocent and loses. Both Reagan and his successor, George Bush the elder, also carefully set about selecting federal judges both in terms of age (opting for young judges who would last a long time) and in terms of ideology (using, for the first time, 'litmus test' questionnaires that prospective judges had to fill in to the Government's satisfaction if they wanted to stand any chance of being appointed). The Federal Sentencing Guidelines that Reagan imposed on judges were eventually found to be unconstitutional in 2005 by the Supreme Court in the cases of Booker and Fanfan, but by then federal judges had become enamoured of it. To this day, they overwhelmingly obey the guidelines without question when punishing people and corporations convicted of federal crimes.

In this environment, defendants usually feel constrained to co-operate with their governmental adversaries and it is perhaps not surprising that the SEC's enforcement division has not lost a jury trial in a federal district court in two-and-a-half-years. The division also achieved a strong record of success in administrative proceedings before the SEC’s administrative law judges, i.e. in the SEC's own private court.

The imperative to admit guilt while settling charges

Ceresney's boss, Mary Jo White, imposed a new 'settlement protocol' on his department in 2013. This requires defendants in certain cases to admit wrongdoing before being allowed to settle matters with the regulator and has led to approximately 80 parties doing so. She explained the reason for this at the time.

"[We decided] to modify the SEC’s long-standing protocol of permitting most defendants to settle cases without admitting or denying liability or the facts that would establish their liability.  In Australia, I know that when ASIC [the Australian Securities and Investments Commission] agrees to settle a civil regulatory action, it, like the SEC, has the discretion to require admissions by the defendant as a condition of the settlement but is not required to do so.

"For many years, the SEC and nearly all other civil law enforcement agencies in the United States, have used a no admit/no deny settlement protocol. It allows us to achieve more and quicker settlements. When we settle enforcement cases without requiring an admission of wrongdoing, we nevertheless most often get the very same penalties through the settlement as we would if we brought the matter to court and won. This, in turn, speeds up the disgorgement of the defendants’ ill-gotten gains, the collection of penalties, and the faster return of funds to wronged investors. No admit/no deny settlements also avoid the delay and uncertainty inherent in civil trials in the United States, and permits us to use our finite resources more efficiently.

"But, as a result of my many years as United States Attorney, when I prosecuted terrorist organisations, organised crime, securities fraud and many others kinds of criminal cases, I understand how powerful a public admission of what defendants did and how they broke the law can be to our system of justice. [The applicable SEC] cases involve particularly egregious conduct, a large number of harmed investors, significant risk to investors or the markets, obstruction of our investigations, or where the defendant presents a particular future threat to investors or the markets."

Ceresney appears to have worked with this onerous new policy very effectively. It is not known whether he intends to join a prestigious law firm and triple his earnings, but that path is a well-worn one. Mary Jo White is also stepping down from her post at the end of the Obama administration. President-elect Trump is thinking of appointing Debra Wong Yang, a former US attorney for the federal court district headquartered in Los Angeles, as her successor.