SEC Penalties For Corporate Misconduct Soar

by Glen Shapiro, LawAndTax-News.com, New York

27 May 2004

A recent study conducted by Reuters has shown that the cost to US firms of settling corporate misconduct disputes with the Securities and Exchange Commission (SEC) has skyrocketed, with more than $500 million in fines handed out by the regulator so far this year.

Speaking to the news service, director of the SEC's Enforcement Division, Stephen Cutler revealed that the size of the penalties imposed by the Commission is linked to the types of misconduct that have been seen in recent years, explaining that:

"It's certainly a response to the gravity of some of the misconduct we've seen in some of these cases. But it's also an evolution in the Commission's approach."

He went on to add that:

"For comparable conduct, you will see comparable fines. I have no doubt."

Some observers have suggested that regardless the size of the fines, the disgorgement penalties imposed by the SEC represent little more than a financial annoyance for the high-earning firms in question.

However, according to Reuters, the SEC has suggested that the "sting" of its actions goes beyond financial penalties, and that in any case, defendants are increasingly being prevented from using tax deductions or insurance to reduce the impact of the fine.

In addition, the regulator announced, companies are becoming increasingly concerned about maintaining a good reputation, and fearful of facing the class action lawsuits which SEC actions often trail in their wake.

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