SEC Enforcement Director Robert Khuzami and OCIE Director Carol di Florio recently testified before a Senate Banking Committee to explain what improvements the SEC had made in response to concerns expressed about the Agency's investigation of the alleged Robert Allen Stanford Ponzi scheme.  SEC Inspector General H. David Kotz specifically identified the need for improved collaboration between the Division of Enforcement and the Office of Compliance Inspections and Examinations (OCIE) in a report that was released April 2010.  

The report included recommendations that Enforcement promulgate and/or clarify procedures to better coordinate Enforcement and OCIE on investigations, particularly those investigations initiated by a referral to Enforcement by OCIE.  The Division of Enforcement responding with new policies and procedures that have significantly increased the level of collaboration between Enforcement and OCIE staffs - at least according to Mr. Khuzami and Mr. di Florio. 

• Enforcement and OCIE hold regular meetings to discuss issues raised in ongoing examinations. 
• The many risk-based investigative initiatives undertaken as part of the overall restructuring of the Enforcement Division require early and frequent contact between Enforcement and OCIE to:  (i) jointly develop risk metrics;  (ii) ID entities with risk profiles indicative of the need for a risk-based examination;  (iii) discuss findings of ongoing examinations; and  (iv) discuss the scope and nature of referrals to Enforcement for investigation.

The two further noted that, in November 2006, Enforcement and OCIE established a process to facilitate the tracking of examination referrals, and ensure that there's a record of all OCIE referrals - accepted and declined by Enforcement (or are accepted and later closed) - and the reasons why.  This process includes referral committees at both the regional and headquarters office.  To ensure ongoing coordination with OCIE where appropriate, Enforcement's new guidance for written investigative plans encourages staff to carefully evaluate and re-evaluate issues throughout an investigation to minimize the risk that investigative steps are overlooked, and to better identify issues that require consultation with OCIE or other Divisions or Offices.

As part of Chairman Schapiro's initiative to improve the handling of tips, complaints and referrals ("TCRs"), Enforcement established the Office of Market Intelligence (OMI) and staffed it with market surveillance specialists, accountants, attorneys and other support personnel;  additional hiring is expected.  OMI's mission is to ensure that Enforcement collect all TCRs in one place, combine that data with other public and confidential information on the persons or entities identified in the TCRs, and then dedicate investigative resources to those TCRs presenting the greatest threat of investor harm.  OCIE's referrals to Enforcement are tracked through this new TCR system to ensure proper Enforcement staff assignment.

These measures are intended to address the issues identified in the Inspector General's report regarding poor coordination between Enforcement and OCIE.

Additional related stories will be written on this topic.  For further details immediately, though, click onto:   [ SEC Testimony - Khuzami, di Florio, 9/22 ]