Risk & Compliance

SEC Fines Approaching 2003 Levels

The commission's enforcement chief attributes at least part of the rise in penalty payments to a toughened approach.
Stephen TaubMay 26, 2004

The Securities and Exchange Commission is continuing to levy fines against corporate wrongdoers at the stiff pace it assumed in 2003. So far this year, the regulatory agency has assessed more than $500 million in fines, according to a Reuters analysis.

Last year, the SEC settled cases for a record total of $1.7 billion, worth more than $10 million each the wire service noted. That figure amounted to more fines than the SEC won in major settlements in the preceding 15 years combined.

The settlements are a lagging indicator of scandal, of course, with the current crop coming several years after the rash of corporate misdeeds involving companies like WorldCom and Enron as well as major mutual fund companies, securities analysts, and New York Stock Exchange traders.

At least part of the activity stems from what the commission touts as its stepped-up ways of enforcement. “It’s certainly a response to the gravity of some of the misconduct we’ve seen in some of these cases. But it’s also an evolution in the commission’s approach,” SEC Enforcement Division Director Stephen Cutler told Reuters.

Cutler also warned that as long as corporate misconduct merits it, the SEC would demand high penalties. “For comparable conduct, you will see comparable fines,” he added.

Not only are more companies being fined, they are being fined more. For example, as recently as 2002, the largest fraud fine ever levied by the SEC against a public company was the $10 million the commission extracted from Xerox Corp. for accounting fraud.

In 2003, however, the SEC fined 20 public companies for $10 million or more, including a $750 million penalty against WorldCom, since renamed MCI.

Nevertheless, the fines aren’t terribly onerous for most companies, Reuters points out. For example, of last year’s 20 largest settlements, 10 amounted to 2 percent or less of the company’s 2003 earnings.

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