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Atkins Calls for Open Jacket Policy in Enforcement

In remarks at the Practising Law Institute's recent SEC Speaks conference, Commissioner Paul Atkins called for the adoption of an internal enforcement manual similar to the U.S. Attorney manual. The manual, which he believes is long overdue, should include what is known as an open jacket policy for enforcement matters, he said. Under the open jacket policy, the government would show defense counsel its evidence against the defendant. If the SEC has a strong case and believes it can win the case in court, it should be open with its evidence, in Atkins' view. He believes the policy would benefit the SEC by convincing defense counsel not to fight a case in court where the SEC has strong evidence. Atkins' remarks are posted on the SEC's Web site.

Atkins called on the SEC to provide more predictability in both substance and procedure. The SEC's offices and divisions should apply procedures uniformly, he said. One area in which Atkins would like to see the SEC provide greater predictability is materiality. Issuers, investors and regulators have struggled with the materiality test over the years, he said.

Atkins believes the SEC complicated the issue when the staff issued Staff Accounting Bulletin 99. This SAB has led issuers to flood shareholders with nonmaterial information, in his view. Atkins added that the bulletin was never voted on by the Commission and was developed without any public input. He believes the SEC should address materiality and return to the principle that it is based on a reasonable investor standard. The SEC should seek public comment before it adopts a materiality standard, he added.

The SEC should also provide more predictability with respect to corporate penalties and settlements, in Atkins' view. He said the SEC should never credit or debit a company for its decisions regarding the waiver of attorney-client privilege because that leaves a person with no meaningful choice. This is particularly important since the SEC's statement on financial penalties provides that the extent of cooperation is a factor in determining how high the civil monetary penalty against a corporation may be.

Atkins also called for greater predictability and transparency across divisions. He said that the Office of Compliance Inspections and Examinations should not impose undue costs on firms with its information requests and should not request documents and information that firms are not required to keep.

Atkins called for the appointment of a cross-divisional new products czar to coordinate the process of approving new products. The czar should ensure that new products are considered in an orderly, efficient and timely manner, he explained. Firms should know what to expect when they seek approval for a new product, and should have a sense of timing so that they can plan their marketing activities, he said.