The SEC announced last week the appointments of the two leaders of its new “Office of Collections and Distributions.” The appointees are Richard J. D’Anna, Director of the office, and Lynn M. Powalski, Deputy Director. The new office is intended to “expedite the return of more than $5 billion in so-called Fair Funds to harmed investors, while cutting red tape and the costs of the distributions.”Mr.D’Anna was previously Senior Vice President at 1st Bridgehouse Securities and a Senior Vice President and Consultant at FITS, Inc. Ms. Powalski was previously an Assistant Director and Assistant Chief Litigation Counsel for Collections and Distributions within the SEC’s Division of Enforcement.

Yesterday marked the final day as an SEC Commissioner for Annette Nazareth.  In a letter to President Bush dated January 18, 20008, Ms. Nazareth announced that she was resigning as of January 31, 2008 “to pursue other professional opportunities.”

Following the departure in September 2007 of fellow Democratic commissioner Roel Campos, Nazareth had been the sole Democrat on the SEC, serving along with Republican Chairman Christopher Cox and commissioners Kathleen Casey and Paul Atkins.  As discussed in this article, “by law, the SEC cannot have more than three members from the same political party, which effectively means President Bush will have to find two Democrats” to join the Commission.  Earlier this year, Senate Majority Leader Harry Reid reportedly recommended two former SEC officials to fill the Democratic spots — Elisse Walter and Luis Aguilar.

The SEC’s 2007 Performance and Accountability Report for its fiscal year ended September 30, 2007, is now available.  Some of the highlights of the Report, which is available here, include:

• There was a significant reduction in the SEC’s collections activity from 2006 to 2007.  According to the Report, “the variance in collection activity is due to a reduction in fair funds collections of $1,307.6 million for 2007, due to a lower volume of financial fraud cases with large settlements. In FY 2006, the SEC won fines and penalties in several large cases. These collections are expected to be distributed to harmed investors in subsequent years.” (p. 18)
• In FY 2007, the SEC distributed $580.5 million to harmed investors. (p. 18)
• In FY 2007, the SEC initiated 776 investigations, 262 civil actions, and 394 administrative proceedings. (p. 25)
• The SEC’s enforcement cases in FY 2007 resulted in a total of approximately $1.6 billion in disgorgement and penalties ordered against securities law violators.  (p. 25)
• As a result of SEC enforcement cases, approximately $13.8 billion in disgorgement and penalties from FY 2003 through FY 2007 were ordered to be paid to the SEC, courts, or other appointed trustees. More than 75 percent of the total amounts ordered had been collected by the end of FY 2007.  (p. 26)
• In FY 2007, 92% of the SEC’s cases were “successfully resolved,” i.e., resulted in a favorable judgment for the SEC, a settlement, or the issuance of a default judgment. (p. 27)
• In FY 2007, 54% of first enforcement actions were filed within two years of opening an investigation or inquiry, lower than the SEC’s goal of 66%. The SEC attributed this lower percentage to two factors: a higher than expected number of more complex cases (issuer reporting and disclosure cases) and the allocation of significant resources to the SEC’s effort to distribute and track Fair Funds to injured investors under Sarbanes-Oxley. (p. 27)

This article by Kara Scannell of the WSJ reports that the SEC plans to hold a roundtable in the first quarter of 2008 to discuss issues and recent proposals related to securities litigation reform.  According to the article,

the thrust of the SEC roundtable, so far, will address [concerns] including who bears the cost of paying for attorneys fees in these lawsuits, the role insurance plays in indemnifying companies or individuals, the percentage of investors who file claims and collect portions of settlements, and how the economics of a settlement change when the defendant is a third-party. The professors also recommend studying whether securities class action deter behavior, the impact of the PSLRA, and how the SEC’s Fair Funds program, granted under Sarbanes Oxley, can be coordinated with settlements from private lawsuits.

On Tuesday, June 26, all 5 commissioners of the SEC, including Chairman Christopher Cox, appeared before the House Committee on Financial Services.  A transcript of Chairman Cox’s opening testimony is available here.  Some Enforcement-related highlights from his testimony:

• The Commission has imposed nearly as many issuer penalties through the first half of 2007 alone as in any full year in the Commission’s history (9 cases through the first two quarters, as compared to a previous high in any calendar year of 11).
• Since the Commission’s recent adoption of penalty guidelines, the Commission has imposed eight penalties of $25 million or higher. No other two-year period in Commission history is higher. The second-highest SEC penalty ever imposed on a corporate issuer (Fannie Mae, $400 million) also occurred after the Commission adopted its penalty guidelines.
• The Commission recently announced its decision to create a dedicated office that will specialize in returning "Fair Funds" to investors.  Since 2005, the Commission has returned over $1 billion to injured investors through Fair Funds, and several additional large disbursements are pending and will be announced shortly.

We will post a link to the transcript and highlights of the questions and answers from this hearing when the transcript becomes available.