The SEC's new cop on the beat.

• Author: Barlas, Stephen
• Position: COMPLIANCE - Securities and Exchange Commission appoints Mary L. Schapiro and Robert Khuzami - Hank Greenberg from American International Group Inc. - Michael Strauss from American Home Mortgage Investment Corp.

With the changing of the political guard in Washington, D. C., earlier this year, conventional wisdom predicted the new Democratic hegemony, stirred by widespread public anger against American financial institutions, would propel the U.S. Securities and Exchange Commission down a more aggressive enforcement path.

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The appointments of Mary L. Schapiro as SEC chairman and former federal prosecutor Robert Khuzami as the agency's division of enforcement director seemed to reinforce that sense of impending change. "People did expect last year's election to result in a more aggressive SEC," said Russ Ryan, a former SEC assistant director of enforcement and currently a partner with King & Spalding LLP in Washington, D.C. Nearly a year into the Obama administration, however, the jury is still out on the revamped SEC. In an interview, Khuzami acknowledged that, "Some think we should be doing more, and others think less. But I don't lead the division by adding up our supporters and detractors. Rather, out focus is on aggressively enforcing the laws against those who commit fraud and other misconduct."

Schapiro and Khuzami have flashed their badges during their first year, announcing procedural and bureaucratic u-turns from the era of former SEC Chairman Christopher Cox. Enforcement cases have increased in number. Some observers say new legal ground has been broken with regard to accounting fraud charges.

But so far--and it's an important caveat at this still-early date--there has been a lot more flash than lash. The Obama SEC to date has taken a very methodical approach to law enforcement, though some might describe it, as one federal judge did, as timid. It is clear that the Obama SEC is bringing more cases and is going particularly after corporate officials, in some cases stretching the law beyond the bounds that constrained the SEC during the Bush administration.

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"By and large, under Chairman Schapiro and her enforcement chief, Rob Khuzami, the SEC is stepping up its pursuit of senior corporate officials," said Barry R. Goldsmith, a partner in the Washington, D.C., office of Gibson, Dunn & Crutcher LLP and co-chair of the firm's Securities Enforcement Practice Group. "Many of these cases are being litigated and it remains to be seen how successful the commission's stepped-up focus on senior executives will be."

Stepped-Up Enforcement?

There have been two cases--one having to do with a financial restatement, the other with illicit foreign payments--where Khuzami has charged corporate executives in legal areas where his predecessors in the Bush administration had not gone. But in one of those cases, the proposed fine was negligible. Moreover, in the recent Bank of America Corp. settlement that Khuzami and Schapiro approved, a federal judge criticized them for not charging corporate...