[ by Howard Haykin and Melanie Gretchen ]

The SEC is undergoing enormous transition.  In the span of one week, three new SEC officials have come on board - Mary Jo White was confirmed as SEC Chairman, former federal prosecutor Andrew Ceresney was named Co-Director of SEC Enforcement, and Anne Small moved from the White House (no relation to Mary Jo) to the SEC's Office of the General Counsel. 

It's good to see stability and permanency taking shape at the SEC, which has meandered since early December 2012, when Chairman Mary Schapiro stepped down from her post.  While she reshaped and retooled the SEC into a once-again respectable and aggressive regulator, Ms. Schapiro left office with a tarnished legacy, for having lost control of her commissioners when it counted most - during her impassioned fight for money market reform.  That bruising defeat will not take away from her achievements, but it will remain like a cloak around Ms. Schapiro's shoulders for many years to come.

Yet, while change can have its positive influence - like the energy and enthusiasm Mr. Ceresney likely will bring bring to Enforcement - change also imparts fear in people.  They shy away from a transition in leadership because they don't know what to expect and they fear that their lives will change and take them out of their comfort zones - the daily routines of their jobs. 

But, over the past six months, the SEC has undergone one very persistent and noticeable change.  The number of enforcement cases is down 23% from the same period a year ago.  Quite a sharp contrast from recent years when the SEC closed record numbers of cases.  Some longtime SEC officials who preferred to speak anonymously, say that the SEC opened fewer investigations in fiscal year 2012 than the previous year.  Several factors account for the declines.

• The case loads arising from the financial crisis of 2008 is drying up, or dwindling. 

• The SEC, which devoted enormous time and resources to investigating and combating insider trading, may now seek out other areas of enforcement - ones that have greater impact everyday retail investors.  That's not to say insider trading will disappear.  First, there's a backlog of cases that must be dealt with.  Second, today's SEC is armed with more advanced and sophisticated technology that enables its staff to readily detect large and unusual trading patterns that oftentimes indicate insider trading.  

• The SEC faces greater obstacles in federal courts, where increasing numbers of judges now challenge settlements that once received rubber-stamp approvals.  Judges are calling upon the SEC and other regulators to abandon the practice of negotiating quick settlements that impose monetary penalties but few convictions of responsible parties.  This phenomenon will continue to play out for the foreseeable future, which will extend the time to negotiate acceptable settlements or to conduct investigations so as to establish culpability on the part of those making decision and determinations at financial banks and brokerages.  

Uncertain Future.   While it is said that the SEC currrently is plagued by low morale, and lawyers' resumes are flying out of the Washington office, it's anyone's guess if or how the new SEC management team will turn things around.   K&L Gates partner and former SEC enforcement official Stephen Crimmins says:  “The enforcement division travels on raw enthusiasm.  When the troops are not enthused, things slow down.”

The SEC counters by noting that Mr. Ceresney will find high morale in the agency’s outposts, including its New York office. It also says the enforcement numbers don’t tell the full story - and that a dwindling docket of cases is only natural, given the ebb and flow of the economy.

Many say Andrew Ceresney, Mary Jo White's hand-picked hire, is one who can breathe new life into the enforcement unit.  Barry Goldsmith, Gibson Dunn partner and former SEC chief litigation counsel who's worked alongside Mr. Ceresney, says he has an incredible ability to master the facts."  [C-I Note:  And to think - he's only 41!  He should have a bundle of energy.]   

For further details, go to [Dealbook, 4/22/13] and [Dealbook, 4/21/13].