In a recent speech to the Securities Enforcement Forum, SEC Chair Mary Jo White fleshed out the Commission’s plan to pursue all violations of federal securities laws, “not just the biggest frauds.”  She also addressed the looming question of whether this approach makes the best use of the agency’s limited resources.

Chair White compared the SEC’s strategy of pursuing all forms of wrongdoing, no matter how big or small, to the “broken window” theory of policing, which was largely credited for reducing crime in New York City under Mayor Rudy Giuliani.  According to the “broken window” theory, a broken window which remains unfixed is a “signal that no one cares, and so breaking more windows costs nothing.”  On the other hand, a broken window which is fixed indicates that “disorder will not be tolerated.”  Chair White postulated that the same theory applies to the US securities markets:  minor violations that go ignored may lead to larger violations, and may foster a culture where securities laws are treated as “toothless guidelines.”  Characterizing the SEC as the investors’ “cop,” she declared that the SEC needs to be a “strong cop on the beat,” understanding that even the smallest securities violations have victims. READ MORE →