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SEC chief speeding penalty process for violations

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MARCY GORDON | February 6, 2009 04:20 PM EST | AP

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WASHINGTON — The new head of the Securities and Exchange Commission is ending a practice that she said had slowed the agency's enforcement efforts against corporate wrongdoing.

In her first public address as SEC chairman, Mary Schapiro said Friday that she was ending a two-year policy requiring agency enforcement attorneys to get approval from the commissioners before negotiating fines and penalties with companies accused of violations.

That practice "just sends the wrong message" and has caused delays, Schapiro said. It is among the steps she said she is taking to revitalize the SEC's enforcement efforts and bolster investor protection.

But the private sector also has to do its part to help restore investor confidence, she told a gathering of securities lawyers and SEC staff members.

"There needs to be a new era of responsibility on Wall Street and throughout our markets to ensure that wrongs don't occur in the first place," Schapiro said. "The sooner that Wall Street works to repair its own problems, the sooner investors will once again find the confidence to invest in what should be the finest markets in the world."

Schapiro, named by President Barack Obama in December to head the SEC, was chief executive of the securities industry's self-policing body, the Financial Industry Regulatory Authority. She also served as chairman of the Commodity Futures Trading Commission in the mid-1990s, and before that as an SEC commissioner for six years.

She took the SEC's helm at a time when it is being called on to help restore investor confidence shattered by the worst financial crisis in more than 70 years. The SEC has faced heavy and unrelenting criticism over its failure to discover the $50 billion Ponzi scheme allegedly run by money manager Bernard Madoff _ despite credible allegations against him being brought to the agency over the course of a decade.

Five high-ranking SEC officials, including the agency's enforcement director Linda Thomsen, received a tongue-lashing from lawmakers this week who accused them of impeding their inquiry into the SEC's breakdown over the Madoff affair.

It was a far friendlier reception Friday for officials such as Thomsen, who cited a list of recent high-profile enforcement cases by the agency.

Schapiro's announcement that the more formal approval process for penalties is being shelved drew applause from the audience. She outlined other steps to speed enforcement efforts at the agency. Those include changes to the process for enabling subpoenas to be issued in investigations, and improvements in the handling of tips and whistleblower complaints regarding fraudulent activity.

"Anything you do to quicken the process should be good for investors," Larry Ellsworth, an attorney at Jenner & Block who formerly worked in the SEC's enforcement trial division, said during a break in the conference.

Schapiro also said she will work to improve the effectiveness of the SEC's process for inspecting brokerage and investment firms.

The agency likely will take further action to address the conflicts of interest among the big credit-rating agencies and to give shareholders a greater say in who sits on company boards. A new investor advisory committee will be formed to gather views from parties outside the traditional power corridors of Wall Street and Washington, Schapiro said.

Another SEC official, noting recent cases filed by the agency against the masterminds of other alleged Ponzi schemes, said the size of those scams has been increasing. But Donald Hoerl, the head of the SEC's regional office in Denver, said the roughly 70 cases involving Ponzi schemes in the past two years was not a huge increase from previous years.

In Ponzi schemes, people are persuaded to invest in a fraudulent operation. The early investors are paid their returns out of money put in by later investors.

Asked about speculation that current rules requiring banks to mark down assets could be suspended as a form of relief in the financial crisis, Schapiro noted the SEC had recently recommended the so-called "mark-to-market" accounting requirements be retained with only possible revisions "around the margins."

The accounting standard requires banks to carry assets, such as mortgage-backed securities, on their books at how they are valued currently. Critics contend that has made the financial crisis worse by forcing banks to slash the value of assets depressed because of market conditions.

Schapiro announced separately Friday that David Becker, who had been the SEC's general counsel from 2000 to mid-2002, is returning to the agency in that position and as senior policy director. Becker has been in private law practice.