International Enforcement Assistance
"A Commitment to Extending the Reach of the Securities Laws
to Violators No Matter Where They Hide"
— Chairman Christopher Cox
United States Securities and Exchange Commission, June 2006
Selected Topics
International Enforcement Assistance
Enforcement cooperation is among the top priorities of the SEC's international program. Technological advances have facilitated the movement of capital across borders and increased investment opportunities for investors. However, these same advances also have enhanced the ability of those who prey on investors to transfer assets abroad or base their scams and fraudulent activities overseas in an effort to avoid detection and prosecution. As a consequence, securities regulators and other law enforcement and governmental agencies may find that reliance on domestic enforcement abilities is no longer sufficient to combat cross-border securities fraud. Strong international cooperation is vital to the quick, effective and appropriate resolution of international enforcement investigations.
Topics:
The SEC was among the first securities regulators to receive the legal authority to assist foreign counterparts in investigations of securities fraud. Today, the SEC can assist foreign securities authorities in their investigations using a variety of tools, including exercising the SEC’s compulsory powers to obtain documents and testimony, subject to the governing rules.
Section 21(a)(2) of the Securities Exchange Act of 1934, authorizes the SEC to conduct investigations on behalf of foreign securities authorities (as defined by the Exchange Act) and compel the production of documents and testimony from any person and entity, irrespective of whether that person or entity is regulated by the SEC. Section 21(a)(2) provides:
On request, the Commission may provide assistance in accordance with this paragraph if the requesting authority states that the requesting authority is conducting an investigation which it deems necessary to determine whether any person has violated, is violating, or is about to violate any laws or rules relating to securities matters that the requesting authority administers or enforces. The Commission may, in its discretion, conduct such investigation as the Commission deems necessary to collect information and evidence pertinent to the request for assistance. Such assistance may be provided without regard to whether the facts stated in the request would also constitute a violation of the laws of the United States. In deciding whether to provide such assistance, the Commission shall consider whether (A) the requesting authority has agreed to provide reciprocal assistance in securities matters to the Commission; and (B) compliance with the request would prejudice the public interest of the United States.
Subject to certain considerations including a foreign securities authority’s ability to provide reciprocal assistance, whether fulfillment of the request would prejudice the public interest, and appropriate assurances of confidentiality, the SEC may in its discretion:
- Assist a wide range of authorities that meet the broad statutory definition of "foreign securities authorities" as defined in Section 3(a) (50) of the Securities Exchange Act of 1934.
- Provide assistance regardless of whether the conduct in question constitutes a violation of US law.
The SEC has the ability to provide access to non-public information in its files with foreign persons. Section 24(c) of the Exchange Act and 17 C.F.R. § 240.24c-1 (Rule 24c-1) thereunder provide that the Commission may, in its discretion and upon a showing that such information is needed, provide such non-public information in its possession to specified foreign persons. The authority requesting such non-public information must establish and maintain such safeguards as are necessary and appropriate to protect the confidentiality of files to which access is granted and information derived therefrom, and provide assurances of confidentiality to the Commission, including assurances that the authority will:
- make no public use of these files or information without prior approval of SEC staff;
- notify the SEC of any legally enforceable demand for the files or information prior to complying with the demand, and assert such legal exemptions or privileges on the SEC’s behalf as it may request; and
- not grant any other demand or request for the files or information without prior notice to and lack of objection by SEC staff.
The SEC website provides direct access to certain public information regarding the registration status and disciplinary history of SEC-registered public companies, broker-dealers, and investment advisers. Please refer to the attached resource list for information on where to access this information.
Section 24(d) of the Securities Exchange Act of 1934 statutorily exempts the SEC from disclosing to third parties confidential information it obtains from a foreign securities authority in response to a Freedom of Information Act request. Section 24(d) provides that, except in certain circumstances, the Commission shall not be compelled to disclose records obtained from a foreign securities authority if (1) the foreign securities authority has in good faith determined and represented to the Commission that public disclosure of such records would violate the laws applicable to that foreign securities authority, and (2) the Commission obtains such records pursuant to (A) such procedure as the Commission may authorize for use in connection with the administration or enforcement of the securities laws, or (B) a memorandum of understanding.
The SEC has approached enforcement-related information sharing on a multilateral, bilateral, and ad hoc basis. Multilateral and bilateral information sharing arrangements operate on the basis of memoranda of understanding (MOU) between securities authorities. Such MOUs delineate the terms of information-sharing between and among MOU signatories and create a framework for regular and predictable cooperation in securities law enforcement. Multilateral and bilateral MOUs detail the scope and terms of information-sharing among securities regulators.
In addition to multilateral, bilateral, and ad hoc understandings, the SEC also uses other mechanisms to facilitate information sharing, such as requests to foreign criminal authorities through mutual legal assistance treaties (MLATs) administered by the US Department of Justice (MLATs), formal letters rogatory between a US court and foreign judicial authorities.
In fiscal year 2006, the SEC made 561 requests to foreign authorities for enforcement assistance and responded to 353 requests from foreign authorities.
In 2002, the International Organization of Securities Commissions (IOSCO) created a Multilateral Memorandum of Understanding (MMOU), the first global multilateral information-sharing arrangement among securities regulators. The SEC was among the first signatories to the MMOU. As of September 2006, 34 securities and derivatives regulators had become signatories to the MMOU and 9 additional IOSCO members had expressed their commitment to become signatories. (IOSCO Members).
Pursuant to the MMOU, signatories agree, among other items, to provide certain critical information, to permit use of that information in civil or administrative proceedings, to onward share information with self-regulatory organizations and criminal authorities, and to keep such information confidential. In particular, the MMOU provides for the following:
- Sharing information and documents held in the regulators’ files;
- Obtaining information and documents regarding transactions in bank and brokerage accounts, and the beneficial owners of such accounts;
- Taking or compelling a person's statement or, where permissible, a person's testimony.
The MMOU has significantly enhanced the SEC's enforcement program by increasing and expediting the SEC's ability to obtain information from a growing number of jurisdictions worldwide. Moreover, the MMOU has created incentives for jurisdictions that lack the legal ability to engage in effective information sharing to enact legislation that will enable them to do so.
The MMOU builds on a body of work by IOSCO aimed at strengthening international cooperation in securities enforcement matters, including Principles of Memoranda of Understanding, adopted by IOSCO in 1991, and the Resolution on Principles for Record Keeping, Collection of Information, Enforcement Powers and Mutual Cooperation to Improve the Enforcement of Securities and Futures Laws, adopted in 1997.
Membership in the MMOU is conditioned upon an objective showing of a jurisdiction’s legal authority to comply with the key provisions. IOSCO has established verification teams to review applications, and the SEC participates in this review. Further information regarding IOSCO Membership and how to apply to be an MMOU Signatory is available on the IOSCO website.
Before the establishment of the IOSCO MMOU, the SEC signed bilateral information sharing MOUs with the securities authorities of 20 different countries. Bilateral MOUs have proven crucial to investigations undertaken by the Commission's enforcement staff and, as such, the SEC considers these bilateral arrangements to be an excellent supplement to the information sharing mechanism of the IOSCO MMOU. In light of the IOSCO MMOU, the SEC staff now strongly recommends the negotiation of bilateral MOUs only if a foreign securities authority is empowered to provide assistance beyond that required by the IOSCO MMOU such as the ability to compel testimony or the gathering of Internet service provider, phone and other records other than bank, broker, and beneficial owner information on behalf of the requesting authority.
Generally, the bilateral MOUs contain detailed provisions on use and confidentiality of information. The assistance available under the current MOUs varies in scope depending on the underlying statutory authority of the regulators that are party to the MOU.
Although MOUs and the MMOU facilitate enforcement cooperation, such arrangements are not a prerequisite for the SEC to cooperate with foreign authorities regarding enforcement matters. The SEC also has cooperated on an ad hoc basis with foreign regulators with whom it has no bilateral MOU or who are not yet signatories to IOSCO MMOU. In the past, such ad hoc arrangements have included communiqués and joint statements that express a desire to develop greater enforcement cooperation capabilities. The SEC also has entered into undertakings for the exchange of information where existing law in the foreign jurisdiction prevents information sharing to the extent set forth in the IOSCO MMOU.
Each year, the SEC receives hundreds of requests from foreign securities authorities for assistance with cross-border investigations. Many of these requests come from jurisdictions with whom the SEC interacts frequently and with whom the SEC has an MOU. Such MOUs, including the IOSCO MMOU, outline how requests for assistance should be made.
We recognize that foreign securities authorities, with whom the SEC may not frequently interact, may have questions regarding the preferred format and content of requests for enforcement assistance. Such authorities may wish to refer to Appendix C to the IOSCO MMOU (APPENDIX C). Subject to certain considerations as set forth in Section 21(a)(2) of the Securities Exchange Act of 1934 and subject to appropriate assurances of confidentiality, the SEC will review all incoming requests for assistance to determine if assistance may be granted. Questions may be directed to OIAEnforcement@sec.gov.
Recent enforcement cases with significant international aspects are listed below. Some of the cases listed below only reflect actions at the time of the initial filing of the case. Certain of the litigation releases, which are linked below, describe allegations of violations of federal securities. Such allegations do not constitute a determination that the defendants named in the SEC's case have committed such violations. Further information about the status of cases can be obtained by referring to our index of Litigation Releases.
- SEC v. One or More Unknown Purchasers of Call Options for the Common Stock of PETCO Animal Supplies, Inc., 06 Civ. 1446 (DMS LSP) (S.D. Cal.) (filed July 2006) (alleged insider trading in call options) LR-19778
- SEC v. Ricardo Cavallero, et al., 06 Civ. 3282 (D.C. N.D. Illinois) (filed June 2006) (insider trading in call options and common stock) LR-19731
- SEC v. Sonja Anticevic et al., 05 Civ. 6991 (KMW) (S.D.N.Y.) (filed August 2005) (alleged international insider trading ring) LR-19696, LR- 19650, LR-19374, LR-19340, LR-19327
- SEC v. Jeffrey A. Weston and Integrated Equities, Inc., 2:06 Civ. 00779 (RCJ-GWF) (D.C. Dist. of Nevada, Las Vegas Div.) (filed June 2006) (alleged fraudulent securities offering involving defaulted pre-war German bonds) LR-19750
- SEC v. Stephen J. Treadway and Kenneth W. Corba, 04 Civ. 3464 (VM) (S.D.N.Y.) (filed June 2006) (settlement in fraud action for undisclosed market timing arrangement) LR-19724
- SEC v. Marvin Winick, et al., 3:06 Civ. 1164-D (D.C. N. Dist. Texas, Dallas Div.) (filed June 2006) (alleged fraud in audit and filing of financial statements and two settlements) LR-19751
- SEC v. Amerindo Investment Advisors Inc., et al., 05 Civ. 5231 (LTS) (S.D.N.Y.) (filed June 2005) (alleged misappropriation of funds) LR-19245
- SEC v. David Tanner, individually and d/b/a Capital Enhancement Club, et al., 05 Civ. 4057 (SAC) (D.C. Dist. Kan., Topeka Div.) (filed May 2005) (alleged fraudulent internet-based high yield investment scheme) LR-19219
- SEC v. Conrad M. Black, et al., 04 Civ. 03761 (N.D. Ill.) (filed November 2004) (alleged fraudulent diversion of corporate assets and self-dealing by officers and directors) LR-18969
- SEC v. Koninklijke Ahold N.V., 04 Civ. 1742 (RMU) (D.D.C.) (filed October 2004) (alleged fraud in connection with financial statements) LR-18929, LR-19034, LR-19454, LR-19721; additional related actions see LR-19961, 34-53326, LR-19031, LR-18797
- SEC v. Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, plc, H-04 Civ. 3359 (D.C. S. Dist. Texas, Houston Div.) (filed August 2004) (settlement of financial fraud) LR-18844
- SEC v. Parmalat Finanziaria S.p.A., 03 Civ. 10266 (PKC) (S.D.N.Y.) (filed December 2003) (alleged financial fraud) LR-18527, LR-18803
- SEC v. Vivendi Universal, 03 Civ. 10195 (S.D.N.Y.) (filed December 2003) (settlement of financial fraud) LR-18523, LR-18352
- SEC v. Greg Waring and Craig Treloar, 1:03 Civ. 2030 (D.C. N. Dist. Ohio) (filed October 2003) (alleged financial fraud) LR-18382, LR-18803
- SEC v. Grand Logistic, S.A., et al., 06 Civ.15274 (S.D.N.Y.) (filed December 2006) (alleged online account intrusion to conduct high-tech pump and dump scheme) LR-19949
- SEC v. Aimsi Technologies, Inc., et al., 05 Civ. 4724 (LLS) (S.D.N.Y.) (filed May 2005) (alleged market manipulation “pump & dump” and preliminary injunction on consent) LR-19238, LR-19273
- SEC v. Bio-Heal Laboratories, Inc., et al., 05 Civ. 21116 (Seitz) (S.D. Fla.) (filed April 2005) (final judgment on market manipulation “pump & dump” and fraudulent non-registration of issuance under Regulation D, Rule 504) LR-19688, LR-19203
- SEC v. Crescent Financial Group, Inc., et al., 04 Civ. 22878 (Seitz) (S.D. Fla.) (filed November 2004) (boiler room operations involving recovery room advance-fee schemes directed at overseas investors) LR-18967
- SEC v. Jim Bob Brown, 06 CV 2919 (U.S.D.C./S.D. Texas (Houston Division) ) (filed September 2006) (alleged three schemes to bribe foreign officials) LR-19832
- SEC v. Steven J. Ott and Roger Michael Young,. 06 Civ. 4195 (GEB) (D.N.J.) (filed September 2006) (alleged bribery of officials violates foreign corrupt practices act) LR-19821
- SEC v. John Samson, et al., 06 Civ. 01217 (D.D.C.) (filed July 2006) (alleged bribery of Nigerian officials violates foreign corrupt practices act) LR-19754
Investors that are located outside of the United States should contact the SEC’s Office of Investor Education and Advocacy with questions, complaints or enforcement tips related to US investments or concerning US brokers, advisers or public companies. In addition, the SEC Center for Complaints and Enforcement Tips provides online forms through which foreign investors may share information with the SEC regarding violations of US securities laws.
Related Links
http://www.sec.gov/about/offices/oia/oia_crossborder.htm
