Sharp decline in SEC enforcement actions

For the first time since corporate fraud emerged as an issue, enforcement actions by the Securities and Exchange Commission SEC have been ...

For the first time since corporate fraud emerged as an issue, enforcement actions by the Securities and Exchange Commission SEC have been slipping 8212; down 14.7 per cent in the current fiscal year. Regulators aren8217;t sure what8217;s driving the trend, but it has triggered speculation that the crackdown on corporate crime may be having an effect on executive behaviour. SEC chairman William H. Donaldson called the decline 8216;8216;encouraging.8217;8217;

Donaldson was quick to add that it was too early for the SEC to declare victory in the war on corporate corruption. 8216;8216;One swallow a summer does not make,8217;8217; he said in a recent interview. Securities lawyers and other SEC observers say that the spectacle of executives being handcuffed and hauled off to jail may have sobered many would-be cookers of the books.

Regulators, however, say there is no way to prove that. 8216;8216;It8217;s difficult to measure your deterrent effect,8217;8217; said Linda Thomsen, deputy enforcement director at the SEC. In the nine months ending June 30, the SEC imposed 378 enforcement actions against companies and individuals. These included fines, forced returns of profits, suspensions of corporate directors, asset freezes and other punishments.

In the same period last year, the SEC tallied 443 enforcement actions. At the current pace, the SEC will log 504 actions for the 2004 fiscal year ending September 30. That would compare with 679 enforcement actions in fiscal 2003 and 598 in fiscal 2002, when the surge in penalties began. Before that, penalties hovered at a lower level, totaling 484 in 2001.

The following year, a series of scandals at Enron Corp., WorldCom Inc. and other companies made corporate wrongdoing a broad public concern. Some experts speculate that the pace of SEC sanctions reveals more about changing enforcement strategies.

The SEC8217;s image took a beating last year after revelations of widespread trading abuses in the mutual-funds industry. In recent months, investigators have examined the use of stock options by high-tech companies, bookkeeping practices in the video-game industry, statements of oil and gas reserves by energy companies and possible manipulation of subscriber numbers by cable companies, according to SEC officials. The SEC, in keeping with a long-standing policy, declines to discuss details of any of its ongoing investigations. Beyond that, the agency has pursued what some describe as a demanding enforcement agenda.

The SEC also has leaned hard on companies to cooperate with its investigations 8212; fining Lucent 25 million and Bank of America 10 million for failing to do just that. And it sent a stinging message to major accounting firms when it hit Ernst 038; Young with a six-month ban on performing audits for new companies.

LAT-WP