SEC Said to Reorganize Enforcement Unit, Trim Management Ranks

By David Scheer for Bloomberg, July 7 2009

The U.S. Securities and Exchange Commission is eliminating supervisory jobs in the enforcement division as it seeks to reduce bureaucracy and speed response to financial-market threats, people familiar with the plans said.

The unit’s biggest overhaul in at least three decades will leave more front-line investigators, fewer management layers and about five specialist teams focused on expanding, complex or opaque areas of the market, the people said. Enforcement Director Robert Khuzami disclosed the plan to senior managers, who are explaining it to the staff this week, the people said, declining to be identified because it isn’t yet public.

SEC spokesman John Nester declined to comment.

Khuzami, a former federal prosecutor who joined the SEC in March, is overhauling the enforcement division after lawmakers questioned its failure to uncover Bernard Madoff’s $65 billion Ponzi scheme. The Government Accountability Office in May said that SEC inquiries were being slowed by a “burdensome” review system and that the number of investigative attorneys had fallen more than 11 percent to 501 from fiscal 2004 to 2008.

Khuzami last week named Debevoise & Plimpton LLP attorney Lorin Reisneras his deputy and in June picked George Canellos to oversee the New York office. He also plans to name a chief operating officer to focus on administration and technology.

The overhaul unveiled this week dissolves the division’s lowest and largest tier of supervisors, the branch managers who oversee small teams of attorneys, the people said. Some may become front-line investigators; others may be elevated to assistant directors. Assistants, who currently supervise about 18 people each, would instead oversee only six.

A plan to create specialist teams, using a similar management structure, is still being refined, the people said.

Khuzami, in an April interview, said creating teams could help investigators gain expertise in certain markets and transactions, enabling them to detect “patterns” more easily. The idea of creating specialized groups predates the unraveling of Madoff’s scheme in December, he noted at the time.