Risk & Compliance

Is Seaboard Back?

In an apparent return to its Seaboard policy of rewarding cooperation, the SEC recommends no enforcement action against two companies that self-rep...
Stephen TaubApril 6, 2006

The Securities and Exchange Commission dropped two previously announced probes this week, both involving mid-size companies that conducted internal investigations.

The moves suggest that the SEC’s so-called Seaboard policy, in which companies can earn leniency by self-reporting misdeeds and cooperating with the SEC, is still alive. The policy, put in place by then-commissioner Harvey Pitt, was derided as a sign that the SEC was going easy on companies. And, as fines escalated in recent years, it seemed that Seaboard was more a stick than a carrot, with the SEC punishing companies for failure to cooperate. But examples at two small companies today suggest that the carrot also exists.

Officials at Catalina Marketing Corp. said they were notified by the regulator that the investigation into certain revenue recognition timing issues is complete, and the SEC staff is not recommending enforcement action against the company. The timing issues were identified by Catalina, and were related to revenue booked in 2003 at its Catalina Health Resource subsidiary.

Catalina provides services based on consumer data culled from supermarket checkout scanners. “Since the SEC began its investigation, we have been committed to helping to resolve any and all issues in a timely fashion,” said chief executive officer Dick Buell.

Meanwhile, officials at Career Education Corp. said that the staff of the SEC’s Midwest Regional Office intends to recommend that the regulator terminate its investigation of the company, and that no enforcement action be taken against the for-profit college. Recommendations made by the regulator’s staff do not constitute final action by the SEC, the company warned, adding that the SEC subsequently makes its own determination as to whether to follow the recommendations of the SEC staff.

In June 2004, a special committee was formed to conduct an independent investigation into allegation of securities laws violations, which first surfaced during a class action law suit. Nearly a year later, in May 2005, Career Education officials announced that the investigation did not uncover support for the claims that senior management orchestrated or directed wrongful activity, although the probe did reveal wrongful conduct by individual employees.

At the time, company executives also stated that the college had taken several steps to improve its internal controls in both the finance and compliance areas, including further development and expansion of its compliance infrastructure.

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