The U.S. Securities and Exchange Commission’s Fort Worth Regional Office is witnessing some changes. Cryptocurrency fraud is all the rage, oil and gas offering fraud is so yesterday. SEC enforcement lawyers are getting more aggressive with witnesses and targets earlier in cases. Whistleblowers with evidence of corporate fraud are being more warmly welcomed.
And a new Twitter feed is in the works.
New SEC Regional Director David Peavler and a panel of white-collar and securities experts spent 90 minutes Tuesday evening discussing changes, trends and developments at the federal agency’s Fort Worth branch. The FWRO has 100 lawyers, accountants and other professionals charged with policing hundreds of publicly-traded companies – including three of the 10 largest corporations in the U.S. – and more than 1,000 financial brokers, dealers, investors and advisors in Texas, Oklahoma, Arkansas and Kansas with more than $2 trillion in assets under management.
Questions and analysis were provided by an expert panel that included former SEC Regional Director David Woodcock, who is now a partner at Jones Day in Dallas; Vinson & Elkins securities litigation partner John Wander; and Ankura senior managing director Jason Flemmons questioned Peavler and provided analysis.
Woodcock, who served as moderator, asked Peavler if he planned to revive the Twitter feed that his predecessor, Shamoil Shipchandler, created and made popular through his use of comedy.
“We will restart the Twitter, but it will be more boring and less humorous,” Peavler responded.
A former general counsel at HD Vest Financial, Peavler has been the regional director for three months and a week. He said the office, despite being understaffed, is “in a good place.”
“There have been times when the office wasn’t doing what needed to be done, he said. “But that’s not the case right now.”
Peavler, who has been on the job as regional director for slightly more than three months, said the FWRO has “the most experienced examination-side staff of any office” at the SEC. He said he wants to rebuild the office’s trial unit, which he said is down about 40% in the size of its staff.
“It is important that we are a credible litigation threat, so that people know we will take cases to trial and win,” he said.
Peavler said the Fort Worth office is investigating several cryptocurrency fraud matters, but it has brought only two oil and gas offering fraud cases – usually the bread-and-butter of local SEC staffers – so far this year.
“Cryptocurrency fraud is, at its heart, just a good old-fashioned offering fraud and Ponzi scheme,” he said. “It is the offering fraud de jour and it is going to be that way for a while.”
Woodcock asked Peavler how the public and bar should judge or evaluate the SEC’s success.
“We often say that numbers [of cases brought] don’t matter – and numbers don’t matter except that they do,” he said. We have to keep an eye on the numbers. At the same time, we could bring a zillion penny stock and oil and gas fraud cases, but those don’t really change any conduct.”
Woodcock and Wander said it seems like the SEC brings fraud cases against companies and negligence cases against individuals in those companies.
“Just because you can get them for negligence, should you?” Woodcock asked.
“Yes, we should,” Peavler replied. “But it is a case-by-case situation. Sometimes, the individual negligence cases show us that we need to be focusing on someone else.”
Peavler, who served as associate director of enforcement of the SEC’s Fort Worth Regional Office prior to becoming the general counsel of HD Vest Financial two years ago, said he’s hired two lawyers for the enforcement division during the past three months and he plans to add a third soon.
“Though the budget purse-strings have loosened a bit lately and the office is starting to hire enforcement staff again, they’ve been hit hard by unreplaced attrition the last three or four years,” said V&E’s John Wander, who represents corporations and business leaders in cases involving the SEC. “So, I think resource constraints continue to be the biggest challenge in the FWRO, which forces the staff to pick and choose their priorities.”
Wander and Woodcock believe that Peavler is the right person for the position at this time.
“David is the first real insider to be hired into that position in a long time,” Wander said. “He brings a long enforcement résumé and both the Fort Worth staff and outside lawyers have a sense of his style and priorities.
“Given the resource-constrained environment in which the office is operating, David brings a necessary sense of stability to the position, with no real learning curve for anyone involved,” Wander said. “He has the necessary patience and demeanor to fight through the resource issues and pursue his and the commission’s agenda.”
Woodcock agrees.
“David knows the inner-workings of the commission as well as anyone,” he said. “And his outside experience at a financial services firm gives him tremendous credibility among those in the investment community, including broker/dealers.”
Woodcock thinks that SEC enforcement lawyers in Fort Worth are operating differently since the U.S. Supreme Court issued its opinion last year in Kokesh v. SEC, which put time limits on the federal agency’s ability to recover disgorgement from ill-gotten gains.
“As a result, I think the SEC staff is much more aggressive early on in investigations,” he said. They are pushing cases faster. They are seeking documents sooner. They want to interview witnesses faster.”