SEC's Hester Peirce blasts agency for pursuing small infractions

Commissioner says agency's past 'broken windows' philosophy put undue pressure to keep pushing up the number of enforcement actions

May 11, 2018 @ 4:26 pm

By Mark Schoeff Jr.

Securities and Exchange Commission member Hester Peirce said Friday that the agency should focus its enforcement actions only on important cases — and when it doesn't, she's not afraid to vote against proceeding.

In a speech at the Rocky Mountain Securities Conference in Denver, Ms. Peirce explained why she votes more than her colleagues against staff enforcement recommendations. Bloomberg Law recently reported that Ms. Peirce voted 'no' about 15% of the time, a higher rate than the other four commissioners.

"When I believe that we ought not to have spent our Enforcement Division's time and effort on a matter, I am likely to vote against it," Ms. Peirce said.

She criticized previous SEC leadership for its "broken windows" enforcement philosophy in which the agency pursued many small infractions to try to prevent larger violations.

Ms. Peirce said that attitude created pressure to keep pushing up the number of enforcement actions.

"While following the 'broken windows' approach, perhaps the SEC should have changed its name to the 'Sanctions' and Exchange Commission, because it acted like a branch of the U.S. Attorney's Office for the Southern District of New York," Ms. Peirce said.

In fact, the champion of broken windows was former SEC Chairwoman Mary Jo White, who once served as the U.S. Attorney for the Southern District of New York.

In fiscal year 2016, which encompassed most of the last year of her tenure, Ms. White celebrated the fact that the agency achieved a single-year record for most enforcement actions filed – 868 – while levying $4 billion in monetary sanctions.

"By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions," Ms. White said in a statement at the time.

Current SEC Chairman Jay Clayton took office in May 2017. Under his leadership, there's been a change in enforcement approach, according to Ms. Peirce.

"Our goal is not to investigate for the sake of investigating, but to protect the capital markets by focusing our efforts on the enforcement actions with the biggest impact," Ms. Peirce said.

Yet, Ms. Peirce, a Republican who joined the SEC earlier this year, still votes against enforcement actions more than her colleagues.

Red flags that she said she watches for include instances where the SEC is doing "rulemaking by enforcement," pushing the "bounds of its authority," engaging in lengthy investigations and curbing attorney-client privilege.

She also has worries about corporate civil penalties.

"After being the victims of the fraud that has led to an SEC investigation, shareholders are now paying a corporate penalty to resolve the matter," Ms. Peirce said. "The SEC needs to be extremely careful in how and when it imposes corporate penalties to avoid making an already bad situation worse for shareholders."


What do you think?

View comments

Recommended for you

Featured video


InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Social Security and the fear of missing out

How to lower expectations when clients think they're owed a bigger Social Security benefit.

7 things advisers should do today to boost diversity and inclusion

Creating diversity and inclusion within financial advice firms is challenging, but these InvestmentNews Excellence in Diversity & Inclusion award winners have suggestions that firms can put into practice today

The midterm elections: What's at stake for financial advisers

A shift in control of the House could change the course of important issues, including the SEC advice rule, tax reform and retirement policies.

What to tell your clients after they've won the lottery

The current combined Mega Millions and Powerball jackpots are more than $850 million. What should you tell your clients if they have a winning ticket?

2019 Medicare premiums announced

Slight increase in Part B premium to $135.50 per month is in line with expectations.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print