Risk & Compliance

SEC’s Atkins: Back Off Company Fines

The commissioner wants the regulator to pursue individuals, rather than companies and their shareholders.
Stephen TaubJune 21, 2005

While senators gear up for the confirmation hearings of Rep. Christopher Cox (R-Calif.) — President Bush’s nominee for chairman of the Securities and Exchange Commission — sitting commissioners are publicly staking out their agenda.

At a luncheon organized by the Association of Public Corporations held last Friday in Fort Lauderdale, Florida, commissioner Paul Atkins said the SEC should go after individual wrongdoers rather than levying heavy fines against the companies for which they work, according to The Sun-Sentinel. “Individuals commit fraud, corporations do not,” he added.

Atkins reportedly said that even though the commission has been able to extract increasingly larger fines in recent years, he worries that the individual transgressors may try to settle with regulators using what he called “a pot of shareholders money.” He also told the audience that individuals who fear being held personally responsible for wrongdoing are more likely to perform better.

Atkins conceded that for companies that have a long record of improper behavior, regulators would be wise to levy large corporate fines as well as individual charges. For example, he explained, fines should be levied on companies that have a history of dumping waste into waterways to save money, because shareholders of such companies profit from the offensive practices.

The Republican commissioner expressed concern about the compliance burden associated with the Sarbanes-Oxley Act of 2002, noting that “everyone greatly underestimated the costs of compliance,” reported the Sentinel. Atkins called Section 404 of the act, which mandates that companies audit and document internal financial controls, the most “expensive and burdensome part of [the law].”

Atkins also reportedly told the audience that regulators must establish more lucid standards, “because it’s not clear what is proper conduct and what is improper.” According to the paper, he asserted that “there was Sarbanes-Oxley overkill by auditors and managers during its first year.” The SEC is currently mulling changes in the way small companies must comply with Section 404.

Several observers believe that the next group of SEC commissioners (Democrat Harvey Goldschmid is leaving as early as this summer, and fellow Democrat Roel Campos’s term ends at the end of this month) will try to roll back certain controversial implementation procedures of Sarbanes-Oxley, which were pushed through by 3-to-2 votes by outgoing commission chairman William Donaldson.

Donaldson irked some of his fellow Republicans by aligning with Democrats on such issues as tightening regulations of mutual funds and requiring hedge funds to register. Donaldson was also an advocate of the so-called proxy access rules that would have given large institutions some say in the director-nomination process despite the strong opposition of Atkins and Cynthia Glassman, another Republican commissioner.