SEC Actions During Turmoil in Credit Markets

The mission of the Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

During the current turmoil in the credit markets, the SEC has worked closely with the Department of the Treasury, the Federal Reserve, and other regulators in the U.S. and around the world to protect investors and the markets.

The SEC administers the federal securities laws, requires disclosure by public companies, and brings enforcement actions against securities law violators.

While other federal and state agencies are legally responsible for regulating mortgage lending and the credit markets, the SEC has taken the following decisive actions to address the extraordinary challenges caused by the current credit crisis:

Aggressively Combating Fraud and Market Manipulation Through Enforcement Actions

• Undertaking sweeping enforcement measures against market manipulation, and aggressively combating fraud that has contributed to the subprime crisis and the loss of confidence in credit markets. More than 50 pending SEC investigations in the subprime area.
• Enforcement Division announced what will be the largest settlements in the history of the SEC for investors who bought auction rate securities from Citigroup, UBS, Wachovia, Merrill Lynch, RBC Capital Markets Corp., and Bank of America. The Commission has finalized the Citi and UBS settlements and the Wachovia settlement.
• Brought a landmark enforcement action against a trader who spread false rumors designed to drive down the price of stock.
• Charged two Bear Stearns hedge fund managers for fraudulently misleading investors about the financial state of the firm's two largest hedge funds and their exposure to subprime mortgage-backed securities.
• Charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction rate securities.
• Charged five California brokers for pushing homeowners into risky and unsustainable subprime mortgages, and then fraudulently selling them securities that were paid for with the mortgage proceeds.
• Charged Fannie Mae and Freddie Mac with accounting fraud in 2006 and 2007 respectively, and the companies paid more than $450 million in penalties to settle the SEC's charges.

Taking Swift Action to Stabilize Financial Markets

• Approved conditional exemptions to allow LCH.Clearnet and ICE US Trust LLC to act as central counterparties for credit default swaps, an important step to help promote efficiency in the CDS market and help stabilize financial markets by reducing counterparty risk.
• Adopted a package of measures to strengthen investor protections against naked short selling, including rules requiring a hard T+3 close-out, eliminating the options market maker exception of Regulation SHO, and expressly targeting fraud in short selling transactions.
• Issued an emergency order to enhance protections against naked short selling in the securities of primary dealers, Fannie Mae, and Freddie Mac.
• In close coordination with regulators around the world, took temporary emergency action to ban short selling in financial securities.
• Approved emergency rulemaking to ensure disclosure of short selling positions by hedge funds and other institutional money managers.
• Issued an emergency order temporarily easing restrictions on the ability of issuers to repurchase their securities in order to help restore liquidity to the markets.
• Provided guidance to banks about how to account for credit support of money market funds.
• Entered into a Memorandum of Understanding with the Federal Reserve to make sure key federal financial regulators share information and coordinate regulatory activities in important areas of common interest.
• Supported Basel Committee on Banking Supervision's plans for new guidance on liquidity management practices.
• Initiated exams of money market funds to analyze portfolio holdings.
• The Division of Investment Management worked closely with the Treasury Department to assist with the development and operation of the Temporary Guarantee Program for Money Market Funds.
• Improved oversight and infrastructure for the over-the-counter credit default swaps market by executing a Memorandum of Understanding with the Federal Reserve Board and the Commodity Futures Trading Commission for dealing with central counterparties for over-the-counter credit default swaps.
• Approved measures to strengthen oversight of credit rating agencies and ensure that firms provide more meaningful ratings and greater disclosure to investors. Also performed examinations that have led to new rules to reduce rating agency conflicts-of-interest.

Enhancing Transparency in Financial Disclosure

• The Division of Corporation Finance asked financial institutions to provide additional disclosure regarding off-balance sheet arrangements and the application of fair value to financial instruments. The Division also sent letters to public companies in December 2007 and March 2008 identifying disclosure issues relating to fair value measurements and off-balance sheet arrangements.
• The Office of Chief Accountant in coordination with FASB staff issued additional guidance to clarify issues regarding fair value accounting, completed a Congressionally mandated study of fair value accounting, and held public roundtables on the topic.
• Continues to look at lessons from the credit crisis and determine ways to give investors more transparent, useful, and timely information.

http://www.sec.gov/news/press/sec-actions.htm