More Wall Street Execs Are Fighting The SEC

The SEC has been witnessing a sharp rise in the number of executives and firms fighting the regulator in lawsuits and willing to go to trial to defend themselves, according to a Bloomberg report.

The regulator has long settled enforcement actions without having to prove its case in court, but is now struggling to cope with the increased number of cases going to trial due to its limited resources, Bloomberg said.

The surge in the number of companies willing to go to trial stems from the 2008 crisis which gave rise to more complex cases, as well as a larger number of lawsuits filed against individual executives, the report said.

The SEC is currently actively litigating about 90 cases, up more than 50 percent in the past year. At the same time, the trial unit staff has stayed relatively unchanged at about 36, Matthew Martens, the SEC’s chief litigation counsel, told the news service.

From Bloomberg:

“If you don’t have a legitimate trial threat, if you don’t communicate to the targets of your investigation that you’re prepared to go to trial, then you can be exploited,” SEC Enforcement Director Robert Khuzami said.

Martens said it’s critical that his unit present a credible threat. “At the end of the day, if we can’t win cases, then people don’t settle. That’s the reality,” he said. […]

The collapse of the housing market and resulting financial turmoil involved complex securities for which there was little legal precedent. In addition, the agency has brought more financial crisis lawsuits against executives -- more than 50 so far -- and individuals are often inclined to fight claims that could damage or end their careers.

Those cases, which have required years of investigation, are central to the agency’s effort to restore its reputation after being battered for more than three years by lawmakers, judges and investors who claimed it hasn’t been tough enough in holding Wall Street to account.

The SEC is currently litigating at least four cases related to complex financial products linked to residential mortgages. Firms including Goldman Sachs, Citigroup and JPMorgan have settled, but executives named in the suits are fighting them in court.

In the meantime, the SEC’s enforcement program is continuing to focus on insider trading. The number of cases the SEC has initiated is rising: it brought 57 insider trading actions in 2011 against 124 individuals and entities, a nearly 8 percent increase in the number of filed actions from the prior fiscal year.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio