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Top SEC Officials Speak at Los Angeles Securities Regulation Seminar


On October 30, 2009, the Los Angeles County Bar Association sponsored the forty-second annual Securities Regulation Seminar to address recent trends and developments in securities laws. The seminar included several panels of scholars, leading private practitioners, and senior officials from the Securities and Exchange Commission (SEC), the United States Attorney’s Office, and the California Department of Corporations. Michael C. Kelley of the Los Angeles office of Sidley Austin LLP moderated a panel on the Changing Face of Securities Litigation.

In light of the economic downturn, the theme present throughout this year’s seminar was the identification and management of risks associated with securities, with particular emphasis on insider trading, Ponzi schemes, and concern about open communication between shareholders and corporations and between financial services firms and regulators. Robert S. Khuzami, Director of the SEC’s Division of Enforcement, stated that the economic downturn resulted in a spike of enforcement cases this year, and that the SEC has responded to and will continue to respond to the additional need for oversight by performing more specialized and streamlined investigations. Mr. Khuzami stated that, among other initiatives, the SEC will hire more trial attorneys, create specialized task forces, and rely more heavily on technology to make its enforcement efforts broader and more effective.

Meredith B. Cross, Director of the SEC’s Division of Corporate Finance, emphasized the significance of shareholder participation for the management of risks associated with securities. Ms. Cross described several proposed rules that are designed to reduce obstacles to shareholder participation through the use of technology and other means, including rules relating to the disclosures of credit rating agencies, proxy access, proxy disclosure, and other rules aimed at increasing proxy voting. Preston DuFauchard, Commissioner of the California Department of Corporations, echoed Ms. Cross’ concerns about risk, described similar initiatives currently underway in California, and highlighted the importance of cooperation between state regulators and the SEC.

Beyond the regulatory framework, several panelists presented on practical considerations concerning securities litigation that have arisen out of the economic climate. Discussions included new developments in jurisprudence relating to securities fraud generally, pleading requirements, secondary liability, statutes of limitations, class certification, and loss causation. Regulators and practitioners both emphasized that, following public accusations of wrongdoing, it is crucial for companies, officers, and directors to immediately cooperate with government investigatory bodies. Michele W. Layne, Associate Regional Director of the SEC’s Los Angeles Regional Office, stated that, when evaluating a company’s level of cooperation with the government, the SEC considers the nature of the misconduct, the company’s response and remediation, the thoroughness of the internal investigation, the independent nature of the internal investigation, and any waiver of privilege if doing so assists the SEC in obtaining facts necessary to its investigation.

The panels reflected the uncertainty in the financial industry and its effect on the public desire for increased transparency, cooperation between industry and government, and more expansive regulation.

Contributed by Anand Singh, Sidley Austin LLP, Los Angeles.