The head of the enforcement division of the U.S. Securities and Exchange Commission says the division is adopting a new specialization strategy as a way to improve its ability to fight securities fraud.

Speaking to the Society of American Business Editors and Writers in Phoenix, Az., Robert Khuzami, said that, in response to widespread criticism of its enforcement performance in recent years, the SEC’s enforcement division is making a number of major changes, chief among them the creation of five specialist groups within the division, in an effort to improve its focus, and enable it to catch frauds earlier in the game.

Khuzami noted that the division’s staff has historically been generalists, often doing different types of cases over time.

“This means that the expertise is diffuse throughout the division and often allowed to dissipate as the staff member moves on to the next case. And this requires the next staff attorney working on an investigation of the same nature to ‘reinvent the wheel’”, he noted, adding that this represents “a failure of the organizational structure to capture and cultivate this expertise in a more meaningful way”.

It has now decided to establish five specialized units, where its staff can develop expertise, learn from each other, receive specialized training, and then build on that through repeated investigation into the same conduct.

“What this does is bring us closer to the holy grail of law enforcement — stopping wrongdoing before it happens or shutting it down as early in the life-cycle as possible,” he said. It also helps it focus its’ efforts.

The five units are:

• the asset management unit, which will focus on investment advisors, investment companies, hedge funds, and private equity funds;

• the market abuse unit, which will target organized insider trading, large-cap market manipulations, and systems-based trading violations such as front-running, collusive trading, best-execution and abusive short-selling;

a structured and new products unit to focus on complex financial instruments;

• the foreign corrupt practices unit dealing with companies bribing foreign officials for government contracts and other business; and

• the municipal securities and public pensions unit.

These units are currently being set up, Khuzami said, management has been selected, and they are expected to be fully staffed by mid-April or so.

In addition, Khuzami said that it is aiming to improve enforcement by adopting various witness cooperation tools, as well as streamlining management and its internal processes (including delegating the authority to start formal investigations and issue subpoenas back to the senior officers in the division).

It has also established the Office of Market Intelligence to oversee the handling of the tips, complaints and referrals that the SEC receives each year. And, it is looking to adopt more qualitative metrics to measure the division’s performance, and help evaluate whether reforms now being implemented are achieving the desired results.

IE