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Statistics, Schmatistics: SEC Enforcement Chief Rejects Numbers, Dollars as Metric for Corporate Enforcement

By Rick Claypool

What’s the best way to figure out whether the government is doing a good job of cracking down on lawbreaking companies?

If you ask the current bosses at one federal regulator, it isn’t the number of cases, or the total amount of fines. Nope. According to Stephanie Avakian, who co-directs enforcement for the Securities and Exchange Commission (SEC), it’s all about quality over quantity.

At Avakian’s agency, corporate penalties plummeted 68 percent between the Obama administration’s last year the Trump administration’s first year, from more than $2.9 billion to about $927 million, according to Public Citizen’s Corporate Impunity report, published in July.

Under Trump, the SEC’s number of completed enforcement actions against corporations dropped 44 percent, from 207 under Obama to 116 under Trump.

This steep decline in enforcement could be why Avakian comes off as a little defensive when she says, “Any assessment that suggests our effectiveness should be measured solely based on the number of cases we bring over any particular period of time is misguided.”

In the full speech, Avakian ruminates at length about numbers and “statistics” being an inadequate measure of the SEC enforcement office’s performance. “But what does it mean for a civil law enforcement program like ours to be ‘successful’?” she says, speculating about the meaning of the word “success” in a way that comes off like Michael Scott, the doofus manager Steve Carell played in “The Office,” explaining why an obvious failure is actually, when you look at it the way he wants you to look at it, is a success.

Avakian continues, defensively (emphases added):

We have spent a lot of time thinking about this, particularly at a time when resources are limited and we face many challenges. This exercise takes on even more meaning at this time of year; in the coming weeks, as has happened in past years, I expect to see many commenters analyze the SEC’s enforcement performance over the past fiscal year and draw conclusions about the effectiveness of SEC enforcement based on their slicing and dicing of the various numbers.

Let me be emphatic about this. Steve [Peiken, the other co-director], and I fundamentally reject the premise these analyses embrace – that numbers – standing alone – can adequately measure the success or impact of an enforcement program. Statistics such as the number of actions the SEC brought in a fiscal year and the dollar amount of judgments and orders obtained in that year are interesting so far as they go, but they only tell us so much. Put simply, statistics do not provide a full and meaningful picture of the quality, nature, and effectiveness of the Division’s efforts.

Avakian, it’s worth noting, is a revolving door staffer — she worked for the New York branch of the SEC, left to become a partner at white collar defense firm WilmerHale (she “represented public companies, boards, and individuals in a broad range of investigations and other matters before the SEC and other agencies”), then returned to the SEC in 2014 to become enforcement co-chair under former SEC Chairman Mary Jo White (who, The Intercept’s David Dayen notes, passed through the revolving door no less than six times before ultimately returning to corporate defense firm Debevoise & Plimpton).

The timeline of her employment means she oversaw the office under Obama — that is, in times of comparatively high enforcement as well as the current enforcement ebb.

The Wall Street Journal’s Dave Michaels provides one possible explanation for an enforcement decline: a 2017 U.S. Supreme Court ruling shortened the SEC’s statute of limitations for bringing lawsuits against wrongdoers to five years.

Perhaps Avakian’s speech is simply a new example of how Trump administration officials are spinning embarrassing enforcement declines. It’s certainly less misleading than when Trump’s Environmental Protection Agency enforcement chief Susan Bodine seemed to take credit for enforcement actions under Obama, and it thankfully refuses to express the hostility to enforcement implicit in statements like Interior Secretary Ryan Zinke’s recent quote to fossil fuel industry lobbyists: “Our government should work fo you, the oil and gas industry.”

If Trump administration officials are embarrassed about declining corporate enforcement, the solution is simple: strengthen enforcement and oversight against corporate criminals and rule-breakers.