Corporate Governance

The SEC Departs from an Important Safeguard

By Harvard Law School Program on Corporate Governance

Recently, the SEC made permanent the delegation of its statutory formal order investigation authority to the Director of the Division of Enforcement. This delegation, which the Enforcement Director has sub-delegated to senior enforcement staff, essentially transfers the SEC?s broad authority to invoke its subpoena power to numerous of its enforcement staff without any apparent oversight.

There is a serious question whether the delegation is authorized under the relevant statutes. Congress gave the power to the Commission (not the staff) to define the scope of a formal investigation and to establish limits within which the staff could resort to compulsory process. In short, the requirement of a formal order is a structural mechanism to keep the staff?s subsequent investigation and use of subpoena power within certain confines. Subpoenas are enforceable only to the extent they seek information which is reasonably relevant to matters within the scope of the formal order, but the staff now defines the scope of their own inquiry. As a result of this delegation and other delegations of authority to the Division Director and senior enforcement staff, the staff can start a formal investigation, subpoena anyone for anything, enforce the subpoena judicially and close the matter with no Commission involvement or oversight.

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Full post as published by The Harvard Law School Corporate Governance Blog on September 02, 2010 (boomark / email).