Last week, the SEC finalized a great expansion of the Enforcement Division’s power by permanently authorizing them to issue formal orders of investigation. Among other things, this grants Robert Khuzami and his deputies the power to issue subpoenas and compel testimony. The move comes after a one-year trial program during which Enforcement was no longer required to seek the full Commission’s permission to issue subpoenas.
The SEC says the change has resulted in “increased efficiency” and improved “communication and coordination in addressing pertinent legal and policy issues,” but the criminal defense bar worries that it will lead to burdensome costs to companies and unfair treatment. Our friends at Sullivan & Cromwell recently passed along this Criminal Defense & Investigations memo discussing the rule change and what it could mean going forward. Here is an excerpt:
On August 11, 2010, the Securities and Exchange Commission (the “Commission”) amended its rules to remove a sunset provision from the extension of authority to the Director of the Enforcement Division to issue formal orders of investigation. Formal orders of investigation enable the Enforcement Division to, among other things, subpoena documents and compel testimony.
On August 5, 2009, the Commission issued a rule authorizing the Enforcement Division to issue such orders for a one-year period. This delegation of authority will become permanent on August 16, 2010. Previously, the Enforcement Division was required to request authorization from the Commission to issue formal orders.
The Commission determined to extend permanent authority to the Director of the Enforcement Division in light of increased efficiency in the conduct of investigations demonstrated during the past year. Although the Enforcement Division routinely receives information through informal investigations in which companies cooperate voluntarily without subpoenas, vesting it with the authority to issue formal orders has increased the number of cases in which subpoenas have been issued.
Click here for the full S&C Criminal Defense & Investigations memo.