More Speed, More Haste!

On August 5th, Robert Khuzami, the new Director of the SEC's Division of Enforcement, gave a wide ranging speech about the "top-to-bottom scrub" that the Division has gone through post-Madoff. For a scrub overview see this memo from Edwards Angell Palmer & Dodge.

One of the things Khuzami promised is a faster investigative process. He has removed at least one procedural roadblock by convincing the Commission to delegate to him the power to issue Formal Orders of Investigation. He plans to delegate this power to "senior officers" of the Division. To encourage SEC investigators to move with a will, he is taking away thier tolling agreements. Tolling agreements, he said, would become the "exception, not the rule. (I, for one, had no idea that tolling agreements were the rule!)"

A tolling agreement is a contract between litigants where both parties agree not to use the statute of limitations as a defense. Section 3.1.2 of the SEC Enforcement Manual says that "[s]uch requests are often made in the course of settlement negotiations to allow time for sharing of information in furtherance of reaching a settlement." Khuzami appears to believe they were also used to maintain a leisurely investigative pace.

The SEC Enforcement Manual appears to back Khuzami's interpretation - it notes laconically that investigators should "[t]ry to avoid multiple requests for tolling agreements by asking for a suitable period of time [...] it is ultimately more efficient to overestimate rather than underestimate the time need to complete the investigation."

*yawn*