“If I were President, I would say “YOU”RE FIRED!”

(InvestmentNews.com) Sen. Elizabeth Warren has asked President Barack Obama to replace SEC Chairwoman Mary Jo White, despite two straight years of record-level enforcement actions by the agency.

In a letter to the president Friday morning, Ms. Warren focused on Ms. White’s “refusal to develop a political spending disclosure rule and repeated actions to undermine the agency’s mission of investor protection and the administration’s priorities.”

Ms. Warren, D-Mass., argues that the disclosure rule would increase transparency for investors by requiring companies to report political contributions.

In her letter, Ms. Warren reminded the president that he “may designate a new SEC chair at any time from among the existing SEC commissioners.”

An SEC spokeswoman declined to comment on Ms. Warren’s 12-page letter, which suggests the battle is just getting started.

“Congressional Democrats will fight to remove the recently passed rider from December’s government funding legislation, and I urge you to threaten to veto any effort to extend this corrupt policy,” Ms. Warren wrote. “But these efforts will be meaningless as long as Chair White continues to control the agenda of the SEC.”

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Even though Ms. Warren’s passion for increased regulatory oversight of the financial services industry has never been subtle, it might be missing the big picture, according to Todd Cipperman, principal at Cipperman Compliance Services.

“I think you’d have a hard time finding anyone in the investment management industry who would say Mary Jo White has been easy on the industry,” he said. “I think the industry views the SEC’s enforcement staff as being very tough, and [Ms. White] has a very significant enforcement record.”

Elizabeth Warren to SEC Chair Mary Jo White: I Want You Fired! For the full story from InvestmentNews, click here

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As described the SEC — and, unusually, admitted to by ITG ITG, -4.29%  — there were two main charges — that the company operated a proprietary trading desk when it claimed to be “agency only,” and that it then used the confidential trading information of its dark-pool subscribers without disclosing that.

The regulator “found that despite telling the public that it was an “agency-only” broker whose interests don’t conflict with its customers, ITG operated an undisclosed proprietary trading desk known as “Project Omega” for more than a year.”

On Monday, ITG CEO Bob Grasser stepped down to be replaced by E*trade veteran Jarrett Lilien in the wake of the scandal and news of the SEC’s proposed fine. ITG General Counsel Mats Goebels also resigned, according to news reports.

An SEC press statement added, “[while] ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, during an eight-month period Project Omega accessed live feeds of order and execution information of its subscribers and used it to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in ITG’s dark pool called POSIT.”

Unlike previous SEC settlements where the accused pays a fine and does not admit any guilt, ITG admitted wrongdoing. Further, it will “pay disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) plus prejudgment interest of $256,532 and a penalty of $18 million that is the SEC’s largest to date against an alternative trading system,” according to the SEC. 

“ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.”

The post BrokerDealer Trading Platform ITG Hit With $20mil Fine; CEO Is Out appeared first on BrokerDealer Blog.

“..The Securities and Exchange Commission is unfortunately pursuing a fundamentally flawed strategy to police the capital markets and protect investors.

Last year, SEC Chairwoman Mary Jo White disclosed she intends on pursuing a “broken windows” strategy for securities enforcement. The SEC intends on prosecuting even minor violations of the federal securities laws in order to prevent wrongdoers from engaging in even more egregious conduct.

The theory is that when a window is broken and someone fixes it, it is a sign that disorder will not be tolerated. When a broken window is not fixed, it is a signal that no one cares, and so breaking more windows, and more serious crime, will follow. This approach is the one taken in the 1990s by New York City’s then-Mayor Rudy Giuliani and Police Commissioner Bill Bratton back when Ms. White was the U.S. attorney for the Southern District of New York, which includes Manhattan.

Unfortunately, the “broken windows” strategy championed by Ms. White is fundamentally flawed. By going after minor offenses, it artificially inflates the SEC’s enforcement actions and gives the appearance of being tough on bad actors. In reality, it is a mirage.

For example, in October, the SEC commenced 34 cease-and-desist actions against public companies and their insiders, alleging violations under Sections 13 and 16 of the Securities Exchange Act of 1934, for failing to timely report information about holdings and transactions in company stock. While this action created a nice headline for the SEC and inflated its yearly statistics, it likely did little to prevent more serious violations of the federal securities laws.

Filing more cases involving smaller infractions simply does not lead to greater compliance by companies like banks and brokerage firms with thousands of employees. The flawed assumption underlying the “broken windows” approach is that the message of deterrence will be heard before violations escalate. But it is rare in white-collar crimes that someone moves gradually from skipping a few filings, the classic small case, to perpetrating significant accounting fraud, defrauding thousands of investors or an insider-trading scheme. Typically, Wall Street brokerage firms engage in large-scale violations without working their way up the ladder of criminality. So the deterrent message is less likely to be heard.

The strategy also provides cover for the SEC to avoid going after the big banks and brokerage firms that are responsible for most of the serious securities fraud-related carnage. The level of financial chicanery engaged in by banks and brokerage firms leading up to the 2008 market crash was extraordinary. Virtually every major bank and financial company on Wall Street engaged in criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth —and nobody went to jail. The SEC’s passive approach to punishing banks and brokerage firms that engaged in this activity led to blistering criticism that the SEC was simply too soft on major market players. An unwillingness to go after the large corporations that engage in most of the serious misconduct cannot be hidden under an avalanche of small actions against fringe wrongdoers.

Even current SEC Commissioner Michael S. Piwowar took aim at the strategy in a speech Oct. 14 when he stated, “A “broken windows’ approach to enforcement may not achieve the desired result.” He argued the idea was flawed because the ultimate goal of regulation is to achieve resilient markets, not regulatory compliance. “If you create an environment in which regulatory compliance is the most important objective for market participants, then we will have lost sight of the underlying purpose for having regulation in the first place,” Mr. Piwowar said.

For the full article from P&I, please click here

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