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Laura Anthony: Why the SEC Cares about Broken Windows


What’s the SEC up to these days?  Making sure there’s no broken windows! Where did this inspiration and concept come from? In 1982, it was introduced by James Wilson & George Keling in an article titled “Broken Windows” but almost 10 years later in 1993, Republican Rudy Giuliani used this strategy to clean up New York City.  In fact, for most Americans this theory has stuck in their minds, because it worked!  The broken window theory assumes if you have a broken window in an empty building and it goes unfixed for a long period of time, then criminals view the “broken” landscape as a message that the community lacks the appropriate controls to fix it and therefore is unable or unwilling to defend itself against a bigger crimes. Now let’s look at the present day, and what the SEC is currently focusing on which is fixing the small broken windows or some would say minor infractions to clean up the small cap space.

Our interview with SEC attorney Laura Anthony, Founder of Legal and Compliance, LLC provides us with at least three areas the SEC if working on more today than ever before.

These days the SEC is committed to enforcing infractions big and small. They are beginning to “investigate, review and monitor all activities, and not just wait for someone to call and complain or just wait for the big cases,” says Mrs. Anthony. The idea is that small infractions lead to big infractions.  In fact, the securities markets have a reputation of overlooking minor violations, creating a culture where laws are treated as meaningless guidelines.  So, Mary Jo White, the 31st Chair of the SEC, has sent a message much like cleaning up the street of New York in the ‘90s that she is going to clean up the streets of the Wall Street.  

3 ACTIONS Board Members Should do NOW!

Because fraud in the marketplace is a BIG area of focus by the SEC, Board Members need to be sure they are aware of and monitor improper activity.  They also must ensure that the company has the following policies in place:

  1. A Strong Code of Ethics
  2. Insider Trader Policy
  3. Whistleblower Policy

Board members must ensure that they get Compliance Reports from the executive at EVERY Board meeting.  Don’t just assume that once a year is enough, ensure that all necessary forms have been filed since the last meeting.

“Buck Stops Here” Philosophy

The Board of Directors needs to have written reports to confirm that they have conducted an investigation and be sure that policies are abided by.  In short, Board Members need to:

  • Be well INFORMED by the executives
  • Take an ACTIVE role if there is an investigation and they need to
  • DOCUMENT that they have done what is needed

The SEC is now using data analytics and technology to monitor irregularities in filing of report and trading activity.  So finding infraction is much easier for them now.  In fact, SEC twice filed multiple actions in a single day for violations of the Forms 3 and 4 and 13D requirements.

Quick bit about the forms:

  • Form 3 – Required when a person first becomes an Officer, Director or 10% Shareholder.
  • Form 4 – Required when there is a change in the Ownership or information that was first filed.
  • Form 13D – Required when a person first becomes a 5% or greater Shareholder of a company. 

 How to Deal with the SEC?

If there is an SEC investigation, the Board needs to conduct their OWN investigation and document its conclusions of the investigations.  If it's an actual enforcement action, Laura recommends hiring a really good defense counsel.  If you don’t, it will cost you. Just look at a recent SEC press release where W2007 Grace Acquisition I Inc. failed to make required public filings and now has to pay a whopping $640,000 to settle the SEC’s charges of 8 missed filings. Most have argued some of the 8 missed filings were for minor issues. Hence reconfirming Mrs. Anthony’s conclusion that the SEC is cleaning house and fixing big and small broken windows. Not convinced?! Then a quote from the Division of Enforcement may change your mind.

Andrew J. Ceresney, Director of the SEC’s Division of Enforcement said in a press release that “W2007 Grace failed to correctly count their holders of record and this action should send the message that there will be consequences for such lapses.”

How to find a good SEC Attorney?

Here are a few sources to consider when finding a good securities attorney:

  1. American Bar Association: They will provide you with the name, address, and phone number of a referral service in your area, which this is a free service.
  2. SEC.Gov (Fast Answers): this section of the website provides you guidelines to consider when hiring an attorney.
  3. FINRA: This site provides guidelines on how to find a good attorney and yes of course mention the American Bar Association as a tool.
  4. OTCMarkets.com – Prohibited Attorney list: for smaller & emerging securities exchange platform has attorneys you should stay away from.

 Not Feeling Compliant?

We invite you then to learn more about our Compliance Resource Analysis or by emailing us at: Info@avivaspectrum.com to start the conversation.

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Listen to Entire Laura Anthony Interview

More about Laura Anthony

Laura Anthony is the Founding partner of Legal & Compliance, LLC, a national corporate, securities and business transaction law firm.  And we’ll be discussing new areas of focus by the SEC.

For 15 years, Laura has focused her law practice on small and mid-cap public companies, the OTC market, new IPOs, mergers and acquisitions and complex business transactions. She founded and hosts a regular show on LawCast.com and You Tube watched regularly by thousands across the U.S. 

Prior to founding Legal & Compliance, Laura served as Chief Legal Counsel for a national investment banking firm and a NASDAQ broker dealer with over 200 employees. She is an honors graduate from Florida State University College of Law and has been practicing law over 22 years.  She is a supporter and of community organizations, including the Cystic Fibrosis Foundation and is active the American, Florida and Palm Beach Bar Associations.