The Securities and Exchange Commission ushered in a new era of leadership on Monday, appointing a former federal prosecutor turned defense lawyer to help run the unit that polices the front lines of financial fraud.
While the shake-up comes as the financial misdeeds of 2008 fade from view, the S.E.C.’s enforcement team will soon confront a fresh batch of challenges under its new leader, Andrew J. Ceresney.
Mr. Ceresney will inherit a unit that is on pace to file the lowest number of enforcement cases in a decade, according to S.E.C. figures provided to The New York Times. In the last six months, through March 31, the number of cases is down 23 percent from the same period a year ago â€" a sharp contrast from recent years when the agency trumpeted its record-high numbers.
Some longtime S.E.C. officials, who were not authorized to speak publicly, also question whether their focus on insider trading cases distracts from investigations of broader significance. What’s more, the officials say that the S.E.C. opened fewer investigations in the 2012 fiscal year than the previous year, presenting a potential obstacle to Mr. Ceresney, who will take the reins with George Canellos, an agency veteran.
The slowdown in cases could stem from any number of issues, including recent court rulings that curb the agency’s power.
Longtime enforcement officials, however, attribute the decline to low morale at the Washington office. They said that some enforcement lawyers were dusting off their résumés to move to the private sector.
“The enforcement division travels on raw enthusiasm,†said Stephen J. Crimmins, a partner at the law firm K&L Gates and a former enforcement official at the S.E.C. “When the troops are not enthused, things slow down.â€
The S.E.C. argues that Mr. Ceresney will find high morale in the agency’s outposts, including its New York office. It also said that the enforcement numbers don’t tell the full story. A dwindling docket of cases is only natural, some officials say, as the agency clears out a backlog of cases stemming from the financial crisis.
“In recent years the division has achieved remarkable success prosecuting financial crisis cases, insider trading and other violations, while returning billions to harmed investors,†the agency said in a statement on Monday. The S.E.C. noted that, under Robert Khuzami, a revamped enforcement unit brought cases against more than 150 companies and individuals tied to the crisis.
Securities lawyers also say that it is common for the S.E.C. to suffer low morale amid a transition period. It was only a week ago that Mary Jo White, a longtime prosecutor and defense lawyer, took over as chairwoman.
Some lawyers say that Mr. Ceresney, her first major hire, could breathe new life into the enforcement unit. They note that he was Ms. White’s longtime lieutenant as both a corporate defense lawyer at Debevoise & Plimpton and earlier in his career as a federal prosecutor in Manhattan.
“He has an incredible ability to master the facts,†said Barry R. Goldsmith, a partner at Gibson, Dunn & Crutcher and the former chief litigation counsel at the S.E.C. who has worked on cases alongside Mr. Ceresney.
Ms. White announced on Monday that Mr. Ceresney would share the role with Mr. Canellos, who became the commission’s interim enforcement chief this year when Mr. Khuzami left the agency. Mr. Canellos, who served as a federal prosecutor under Ms. White when she was United States attorney in Manhattan, is also a friend and former colleague of Mr. Ceresney.
“I am excited to be charged with implementing Chairman White’s mandate of bold and unrelenting enforcement and thrilled to be teaming again with George,†Mr. Ceresney, 41, said in a statement.
Yet it is rare, if not unprecedented, for the enforcement unit to be run jointly.
And while Mr. Canellos is well liked, people close to the agency say, some S.E.C. commissioners objected to his bid for more power. The commissioners were particularly concerned with Mr. Canellos’s push to bolster the independence and authority of the enforcement unit, a move some investigators welcomed but might have isolated the commissioners from the investigative process.
He also irked some members of the S.E.C. trial team when he referred to them at an agency town hall meeting as “case killers,†employing an obscenity as an adjective, according to people who attended the event. Mr. Canellos later apologized.
Despite the concerns, the joint leadership is likely to be temporary, people briefed on the matter said. Mr. Canellos, who has been at the S.E.C. nearly four years, is expected to return to private practice before the end of 2013.
And some S.E.C. officials argued that Mr. Ceresney, a newcomer to the agency, would benefit from Mr. Canellos’s experience. He was instrumental, for example, in revamping the S.E.C.’s policy for how companies use social media.
“George is a brilliant lawyer, and a tremendous and inspirational leader,†said Andrew M. Calamari, head of the agency’s New York office.
In a statement, Ms. White added that “George and Andrew are two of the best lawyers and finest people I know.â€
Still, Mr. Ceresney faces his share of challenges. His appointment, which does not require Senate approval, could renew concerns about a revolving door that shuttles S.E.C. lawyers from the government to the private sector, and back again.
While at Debevoise, Mr. Ceresney represented a number of the nation’s largest banks, including JPMorgan Chase during an inquiry involving its foreclosure practices. Mr. Ceresney is expected to recuse himself from cases involving his former clients.
The S.E.C.’s caseload presents another test for Mr. Ceresney. In addition to the dwindling number of actions, the S.E.C. is unlikely to catch any breaks from the courts. The Supreme Court recently rejected the agency’s argument that it should have additional time before the statute of limitations in fraud cases expires.
The agency has run into resistance in the lower courts as well. Judge Jed S. Rakoff of the Federal District Court, for example, has said the agency’s settlement with Citigroup “is neither fair, nor reasonable, nor adequate†in part because it did not include any admission of wrongdoing.
The enforcement unit’s own employees are also eager for new direction. Senior investigators were sidelined when Mr. Khuzami created specialized units to track complex corners of Wall Street after the financial crisis and Bernard L. Madoff’s Ponzi scheme.
Some officials have suggested abolishing the units, people briefed on the matter said. Others are proposing an expansion, hoping the agency will broaden its reach to thwart the next financial crisis.
“The commission went through a very tough time post-Madoff,†Mr. Goldsmith, the former S.E.C. chief litigation counsel, said. “People are looking beyond that to ask: so now what?â€
