Risk & Compliance

Cox Promises Policy on Large Fines

SEC chairman wants to "demystify the process" that has imposed 15 penalties of at least $10 million so far this year.
Stephen Taub and Tim ReasonDecember 14, 2005

Securities and Exchange Commission chairman Christopher Cox has said that the regulator will soon set a firm policy on levying large monetary fines, according to Reuters.

“We’ve been spending a great deal of time on it,” Cox told reporters after an SEC meeting in Washington, D.C. “It’s helped all of us form our own and perfect our own views. The next step is, to the extent possible, to formalize that understanding in the form of guidance.”

In April 2002, the SEC levied an unheard-of $10 million fine against Xerox. Less than four years later, the record fine — now held by WorldCom — stands at $750 million. At least half a dozen other companies, including Royal Dutch/Shell Group, Qwest Communications International, AOL-Time Warner, and Computer Associates International, are also members of the $100 million-plus club.

Reuters also noted that this year, the SEC has already imposed 15 penalties of at least $10 million.

Some critics, and apparently several SEC commissioners, have historically opposed large monetary penalties on companies since ultimately shareholders pay for them with lower earnings and, presumably, lower share prices.

According to the wire service, Cox said he wants to “demystify the process both internally for our professional staff in enforcement around the country, and externally for the regulated community that seeks to understand how the commission operates.” He reportedly added the SEC may ultimately provide guidance “in the context of actual case decisions. Alternatively, we could provide it in the form of a statement from the commission or an interpretive release.”

Cox reportedly dismissed suggestions, however, that the SEC might wind up imposing fewer penalties on corporations, maintaining his belief that “we’ll have more clearly expressed objective criteria for imposing these penalties.” The ultimate goal, said the chairman, is to “lay out in greater detail the substantive process of application of the law to the facts.”