SEC takes smaller bite in sanctions

Sanctions imposed by the Securities and Exchange Commission fell to the lowest level since 2002, after Republican commissioners complained that heavy penalties hurt investors and the agency brought fewer billion-dollar accounting fraud cases.

The SEC brought a record 656 cases in fiscal 2007, 14% more than the previous year. But the agency collected only $1.6 billion in fines and illicit profit in the year ending Sept. 30, compared with more than $3 billion in each of the previous three years, the SEC said in a report released Thursday. In 2002, when Congress passed the Sarbanes-Oxley corporate governance law, the total was about $1.4 billion.

Chairman Christopher Cox said a lack of massive corporate fraud cases during the year reduced the amount of penalties imposed.

The SEC ratcheted up financial sanctions after Sarbanes-Oxley stiffened audit requirements in response to accounting scandals at Enron Corp. and WorldCom Inc., the agency’s data show.

The surge sparked a partisan dispute at the agency, with Republican Commissioner Paul Atkins saying penalties hurt shareholders and then-Commissioner Roel Campos, a Democrat, countering that the penalties deterred fraud.

Business groups have also complained about the punishments. The Committee on Capital Markets Regulation, chaired by President Bush’s former economic advisor, Glenn Hubbard, and ex-Goldman Sachs Group Inc. President John Thornton, wrote in a 2006 report that fines “have grown disproportionately large relative to their deterrent benefit.”

The commission adopted new corporate penalty guidelines in 2006, five months after Cox took the reins of the agency.

As a result, the agency now weighs “the presence or absence of a direct benefit to the corporation and the degree to which the penalty will recompense or further harm injured shareholders,” Cox told the House Financial Services Committee in June.

The SEC’s 2007 sanctions included about $507 million in fines, down from about $975 million in the previous period. Disgorgement of ill-gotten gains fell to about $1.1 billion from about $2.3 billion.