U.S. SEC, top business lobby clash on enforcement
By Joel Rothstein
WASHINGTON (Reuters) – The largest U.S. business lobbying
group criticized federal securities regulators on Thursday for
bringing what it described as a “wave” of losing cases against
businesses, drawing a sharply worded reply from the nation’s
top market regulator.
The U.S. Chamber of Commerce called on the Securities and
Exchange Commission to form a special advisory committee to
examine its enforcement practices.
“The commission should closely evaluate the number of
recent losses in litigated enforcement actions, the various
reasons for those losses, and the criticisms of both factual
assertions and legal theories that are contained in the
decisions,” the chamber said in a report on SEC enforcement.
SEC Chairman Christopher Cox said the investor protection
agency will weigh the chamber report, but issued a warning.
“So long as a business is friendly to its investors, the
SEC will be friendly to it,” Cox said.
“But anyone who attempts to drive a wedge between the
interests of their business and the interests of investors in
that business will find themselves confronted by a relentless
and powerful adversary in the Securities and Exchange
Commission,” he said.
The chamber has been a fierce critic of the SEC for some
time and has stepped up its efforts amid intensified complaints
from businesses about a post-Enron crackdown by the SEC.
Last year, the chamber sued the SEC to try to block
implementation of a mutual fund governance rule that requires
that fund board chairmen, and 75 percent of fund directors, be
“independent,” or free of direct ties to fund managers.
The lawsuit heightened tensions between the SEC and
business lobbyists, who are now pushing on several fronts to
try to roll back some of the Sarbanes-Oxley reforms and rein in
the SEC’s aggressive investigative efforts.
An SEC spokesman provided statistics that show there has
been neither an uptick in enforcement cases reaching trial, nor
in litigation losses in the courtroom.
In 2006, 13 enforcement cases involving 18 defendants
reached trial either in federal court or before an
administrative law judge. The SEC lost against two defendants.
Between 2003 and 2005, 113 cases involving 206 defendants
reached trial. The SEC won its cases against 169 defendants for
an overall conviction rate of 82 percent, according to the
agency spokesman’s statistics.
The chamber cited several instances in which the SEC failed
to make its case, including a disclosure action against Siebel
Systems (since acquired by Oracle Corp.), in which a judge said
the SEC applied the law incorrectly.
“We don’t believe that pushing enforcement theories beyond
what the law provides helps competitiveness, said chamber
spokesman Eric Wohlschlegel. “SEC enforcement cases have been
arbitrary and unpredictable.”
In the wake of major corporate scandals, the SEC is using
new power under the Sarbanes-Oxley Act to impose larger civil
penalties and return money to victims.
The chamber also criticized “sweep examinations” which
target suspected abuses by a range of companies at once.
Under a plan being discussed at the SEC, the five-member
commission would have more say on the agenda of the Office of
Compliance Inspections and Examinations (OCIE), which conducts
sweep exams, according to SEC Commissioner Paul Atkins.
Atkins and SEC Commissioner Cynthia Glassman have also
called for restraint in some penalties the SEC has imposed.
In his statement, Cox praised the SEC enforcement division
led by Linda Thomsen and said it will continue “vigorous
efforts to deter wrongdoing and punish violators — because
investor protection demands it.”
(Additional reporting by Kevin Drawbaugh in Washington)