Risk & Compliance

SEC Toughening Up on Noncooperation

Symbol Technologies, Lucent, and Banc of America Securities are three of the latest companies to pay up for being less than forthcoming.
Stephen TaubJune 7, 2004

Last week’s $37 million settlement between the Securities and Exchange Commission and Symbol Technologies — part of the bar code giant’s $138 million settlement of civil and criminal charges — reflects a stronger stance by the commission toward companies that fail to cooperate with SEC investigations.

Fines for noncooperation are hardly new. In the fall of 2001, during Harvey Pitt’s tenure as SEC chairman, he issued a report indicating that when the commission determined penalties for a company under investigation, the company’s responsiveness would be a factor.

Subsequent fines, and the announcements that accompanied them, backed up Pitt’s warning. In April 2002, when Xerox Corp. agreed to pay $10 million to settle fraud charges, an SEC press release noted that “the penalty also reflects, in part, a sanction for the company’s lack of full cooperation in the investigation.” And in September 2003, following a $10 million settlement with American International Group, the SEC stated that the fine was assessed not only for violations of the securities laws, but also for “the manner in which [AIG] conducted itself in the commission’s investigation.”

Now, the SEC is sending a variety of signals that those earlier fines may have been only the beginning. Take its announcement of the settlement with Symbol Technologies: “In assessing the penalty amount, the commission considered the scope and severity of the fraud, Symbol’s initial efforts to cover up the misconduct and impede two internal investigations and the commission’s investigation, and the company’s eventual cooperation and remediation,” the SEC stated.

“The company ultimately did cooperate with the government — and received credit for having done so,” noted Stephen Cutler, director of the commission’s Division of Enforcement, in a statement. However, added Cutler, “its initial response to our investigation further harmed investors by delaying exposure of the fraud and allowing it to continue longer than it otherwise might have.”

The SEC did not specify how much of the $37 million fine was attributable to Symbol’s noncooperation. In May, however, the commission was very specific when it fined Lucent Technologies Inc. $25 million for not cooperating with an investigation of its accounting practices — the largest penalty imposed on a company for not cooperating with an SEC probe.

In fining Lucent, the SEC accusing the company of incomplete document production and failing to ensure that a relevant document was preserved and produced in response to a subpoena. The commission also asserted that after reaching an agreement in principle with the SEC to settle the case, Lucent’s former chairman/CEO and outside counsel agreed to an interview with Fortune magazine in which Lucent’s counsel characterized Lucent’s fraudulent booking of a $125 million software pool agreement as a “failure of communication,” thus denying that an accounting fraud had occurred.

The Lucent announcement came not long after the commission settled an action against Banc of America Securities. While the SEC investigated whether the bank had traded securities in companies prior to issuing research on those companies, BAS was tardy in producing E-mail, compliance reviews, and compliance and supervision records concerning the personal trading activities of a former senior employee, according to the commission.

The commission fined Banc of America Securities $10 million for “willfully” failing to produce documents during an SEC investigation, reported Bloomberg. According to the commission, the bank “repeatedly failed to promptly furnish documents requested by the staff, provided misinformation concerning the availability and production status of such documents, and engaged in dilatory tactics that delayed the investigation.”

The BAS investigation itself is continuing.

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