EIGHTH ANNUAL A.A. SOMMER, JR. LECTURE ON CORPORATE, SECURITIES, AND FINANCIAL LAW[dagger], THE

Fordham Journal of Corporate & Financial Law, 2008 by Treanor, William Michael, Indek, Ben A, Fisch, Jill E, Atkins, Paul S

This evening I would like to talk about an issue that barely preceded, but substantially affected, Commissioner Sommer's tenure at the SEC. Before I reveal the topic, some background is in order.

The SEC is fast approaching the 75th anniversary of its creation. Next year, of course, marks the 75th anniversary of the Securities Act of 1933.63 Thereafter, the Securities Exchange Act of 1934 established the SEC to keep the Federal Trade Commission out of the securities markets,64 which is a story full of political intrigue itself, and endowed it with a wide array of powers.65 Through legislative amendments, those powers have expanded since 1934(66) and the SEC also was charged with the administration of the federal securities statutes.67 Today, the SEC is charged with administering the Trust Indenture Act of 1939,68 the Investment Company69 and the Investment Advisers Acts of 1940,70 and certain provisions of the Sarbanes-Oxley Act,71 some of which fall outside of the earlier securities laws. That is a lot of statutory responsibility, but at least we finally were able to shed the responsibility for the now-dead Public Utility Holding Company Act of 1935.72

The SEC was created to be, and remains, primarily a disclosure agency. In pursuing its statutory missions of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation, the SEC since its inception has mandated public disclosure of current and accurate information from issuers and regulated entities. The theory behind a rigorous disclosure regime is that investors should have current, materially complete, and accurate information to make educated, informed investment decisions. At the same time, however, investors should enter into the markets knowing that there is no governmental insurance policy protecting them from unwise decisions. Often, however, despite Commissioner Sommer's legacy in Regulation S-K and efforts by others to promote transparency, disclosure rules are not enough. Therefore, a necessary corollary to a disclosure regime is a program of strong enforcement. If you make materially false disclosures or if you omit required disclosures, the SEC has and can bring a cause of action against you.73 With that in mind, Congress has given the SEC strong enforcement powers in the federal securities laws. These powers have evolved-and increased-over time through legislation, regulation (just look at Rule 10b-5), and judicial interpretations. To be sure, the arsenal of enforcement remedies possessed by today's sec, including the ability to penalize corporations, is markedly different from the stop orders and injunctions of 70 years ago.

The current SEC enforcement program is highly visible and highly regarded. The Division of Enforcement now has over eleven hundred staff members located in the home office in Washington and in the eleven regional offices.74 The staff brings hundreds of enforcement recommendations to the Commission each year (who's counting, right?) and many other matters are investigated and then closed. The enforcement staff investigates and recommends cases involving a wide range of activities, including Ponzi and pyramid schemes, bogus offerings, untrue disclosure, insider trading, market manipulation, a new wave of Internet intrusion matters, and the more esoteric, often very controversial, accounting cases.75 In every substantive area and in all of the SEC's far-flung offices, the staff of the Division of Enforcement proves themselves every day to be professionals of the first rate.