In FY 2011 the Commission filed 99 enforcement actions, the highest annual number of filings in program history, and opened more than 450 new investigations, also a program high. During the same time period the Commission obtained orders imposing over $290 million in civil monetary penalties, and directing the payment of more than $160 million in restitution and disgorgement, which more than doubled the prior fiscal year's imposition of such sanctions. At the same time, the FTE level dedicated to enforcement matters has only reached the operating levels that it had nearly a decade ago with a much smaller docket (in size and complexity).
The Dodd-Frank Act significantly enhances and expands the Commission's powers and responsibility to police the markets for fraud, manipulation and other abuses and will, certainly by FY 2013 if not much sooner, result in a substantial increase in our workload. Moreover, the size of the docket stemming from pre-DFA enforcement authorities, particularly with respect to the investigation and prosecution of frauds against retail customers, manipulation, supervision failures, recordkeeping, reporting and trade practice violations, is projected to continue its upward trend.
By FY 2013, the Commission's enforcement workload will increase for a number of reasons including:
The enforcement activity generated by this broadened regulatory authority will necessitate the development of specific areas of expertise, and require an increased capacity for proactive identification of violations. Our litigated cases, particularly any involving anti-manipulation and disruptive trading practices, will tax our resources more than in prior years.
To begin preparing for the increase regulatory scope the Commission made internal changes to the management of its enforcement function to promote greater flexibility and efficiency in the Commission’s enforcement team in FY 2011. These changes include flattening of the organization; changing from small teams with pre-set rosters to a system that forms teams depending upon the needs of cases; and developing areas of specialization for staff in certain enforcement areas.
In FY 2013, the Commission seeks an additional 50 FTE to support fraud enforcement matters, including retail investor fraud (13 FTE); manipulation and disruptive trading enforcement matters (21 FTE); regulatory, supervision and trade practice matters (9 FTE); and enforcement matters related to swaps (7 FTE). The largest increase for manipulation and disruptive trading matters reflects the complexity and time intensity of those investigations. The smaller increase in staffing for swaps enforcement reflects the newness of the regulatory framework. It is likely that the Commission will request additional resources for enforcement matters related to the expanded swaps mandate in future years. In addition to staff years, the Commission is requesting an increase in resources to support the additional travel, expert services and transcript needs commensurate with an increase in case load. These costs are inherent in the successful investigation and litigation of enforcement matters. (50 FTE, $14.271 million)
Additional funding will be necessary in FY 2013 to further automate investigation, discovery, forensics, evidentiary analysis, and case management. The Commission will seek to expand its current system or migrate to another commercial off the shelf product. Implementation of new tools for forensics, eDiscovery, tips and referrals, and early case assessment together with enhancement of existing tools for deposition management, case management, searching, and analytics will support both a higher volume of investigations and more effective measurement of program results. Better integration of unstructured investigation-related data with structured surveillance and position data will enable more proactive identification of high-impact enforcement actions. The Commission will seek to expand its current system or migrate to another commercial off the shelf product in support of enterprise-wide case management, integrating surveillance referrals into the ingestion process for enforcement cases. ($1.830 million)
Organizationally, the Commission’s examinations-related increases will support the requirements of three program areas:
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