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SEC seeking 'fix' for unfavorable Supreme Court collection ruling, Jackson says

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Peirce, part 2: Court's limit on collection efforts could push SEC to work faster

Jackson, part 2: SEC seeking to 'fix' unfavorable Supreme Court collection ruling

? The SEC is now eight years late completing rules that the Dodd-Frank Act mandated, Commissioner Robert Jackson Jr. said.

? A Supreme Court ruling that prevents collections of fraudsters' illegal gains made outside a five-year window is an "enormous problem," according to Jackson.

? The SEC's success should be measured by money returned to defrauded investors, not the number of enforcement actions the agency brings, he said.

On Jan. 11, the Securities and Exchange Commission swore in Robert Jackson Jr. and Hester Peirce as its two newest commissioners. Jackson, a Democrat, previously was a law professor at New York University and was special deputy master for TARP executive compensation. Since taking the role at Wall Street's top regulator, he has pushed back against companies' use of "forever shares" and spoken out in favor of more climate-related disclosures.

SEC-issued fines slowed significantly in the beginning of 2018, but Commissioners Jackson and Peirce both said the agency's success should not be measured on the number of actions it brings.

The two commissioners spoke separately with S&P Global Market Intelligence about their views on the agency's enforcement policies. The following is an edited version of the second part of Jackson's conversation.

SNL Image
SEC Commissioner Robert Jackson Jr.
Source: The Securities and Exchange Commission

S&P Global Market Intelligence: What are your priorities while at the SEC?

Commissioner Robert Jackson Jr.: Bring us back to that core mission of investor protection. I'd like the SEC to regain its credibility as an agency that can deliver on the promises it makes to the Congress and the people of the United States. We haven't completed the rules from the Dodd Frank Act that are now eight years overdue. To me that is a real problem for the credibility of the agency.

My background has focused a great deal on data and the ways in which data science can help the SEC be better at its job. I'm hopeful that if I can make one change at the SEC over the next year or two, it will be that we are even more transparent and forceful in our presentation of data to the world.

The SEC hasn't done nearly as much as it can in taking the data we have about the market and sharing it with investors.

There has been a decline in actions and fines brought by the SEC. How do you view the state of the SEC's enforcement strategies so far?

I'm unconvinced that the right way to measure our performance is by counting the number of cases we bring. One of the things I've been working on is to find out how we should measure our performance. We should be focused on how many dollars we return to defrauded investors and how much we penalize the companies that defraud them.

Something I've been very concerned about is the way in which some of my colleagues have argued for limiting penalties on the notion that penalties themselves can hurt investors. Penalties are meant to deter future fraud, which of course helps investors.

We should be getting much more serious about the way we calculate and impose our penalties. They serve an important deterrent function to stop future fraud, and that's our job.

I'm also concerned about whether we have the law that we need to bring all the cases we need to bring. There have been many recent initiatives to amend or extend insider-trading law, either as a matter of statute in Congress or with the SEC, to address problems. I'm very interested in them.

In Kokesh v. SEC, the Supreme Court decided the SEC is subject to a five-year statute of limitations that prevents the agency from collecting on illegal gains made outside of the five-year window, which could prevent the agency from recovering more than $800 million in disgorgement. How has that affected the SEC?

Kokesh is an enormous problem for our efforts to return money to defrauded investors. There's no doubt that there are hundreds of millions of dollars that could've and should've been returned to investors that weren't because of that decision.

I know that Chairman Clayton is right now working on efforts both in the Congress and elsewhere to encourage them to fix this. Getting a fix to that decision, whether it's a matter of statute or otherwise, should be among our top priorities.

What can we do in the meantime? We can pursue more cases and bring more disgorgements that fit within the confines of Kokesh.