SEC’s New Cop on the Beat : L.A. Unit’s Chief Inherits Inter-Agency Cooperation Forged by Predecessor
While a high school student in the Chicago area, James L. Sanders worked two summers as a runner in the Chicago Board of Trade’s wild and woolly commodity trading pits. It was the beginning of a lifelong involvement with markets.
Today, Sanders is still running but after a different wild and woolly crowd. As the Securities and Exchange Commission’s new regional administrator in Los Angeles, Sanders is chasing after unscrupulous characters involved in insider trading, penny stock fraud and other securities transgressions.
It is a race he relishes, despite the fact he could easily earn more than his expected $70,000-plus annual salary as a securities lawyer in the private sector.
“I really enjoy the work,” says Sanders, 41, who has spent his entire career pursuing white-collar criminals through previous stints as an SEC attorney in Chicago and, most recently, as an assistant U.S. attorney in Los Angeles. “It’s a chance to do some very interesting work on a regular basis . . . and a chance to perform a public service.”
But although Sanders is new to the job, many challenges facing him are old. The perennial problems of insufficient staff and resources, low salaries, high employee turnover and other drawbacks mean that the SEC can pursue only a fraction of cases it deems worthwhile.
But two factors give Sanders hope that he can be more aggressive in the battle against securities crooks in his region, which includes California, Arizona, Nevada and Hawaii.
First, Sanders’ office will benefit from greater cooperation and coordination on securities cases between federal, state and local law enforcement agencies. Such harmony was established under Sanders’ predecessor, Irving M. Einhorn, who left the post in May to become executive vice president and general counsel of Pacific Brokerage Services, a Los Angeles discount brokerage.
The cooperation resulted, among other things, in sharp increases in arrests and convictions of operators of “boiler room” telemarketing scams.
Second, Sanders will benefit from the U.S. Attorney’s Office in Los Angeles adding three new attorneys to devote full time to securities cases. Sanders’ office must refer any cases it wishes to pursue on a criminal basis to the U.S. attorney’s office for prosecution, since the SEC itself can only file civil or administrative actions.
The additional personnel result from an initiative announced earlier this year by U.S. Atty. Gen. Dick Thornburgh to form six anti-fraud task forces nationwide. That will allow the SEC office in Los Angeles to pursue significantly more criminal cases, and enter them sooner, when key evidence and witnesses are fresher and more accessible, Sanders says.
The number of criminal securities cases has already been growing in recent years, in part because the local U.S. Attorney’s Office has showed greater interest in prosecuting them. In perhaps the most celebrated criminal case under Einhorn’s tenure, the U.S. Attorney’s Office won guilty verdicts on securities fraud charges last year against former Encino carpet-cleaning whiz Barry J. Minkow.
But still, while the local SEC office handled about 30 civil or administrative cases annually, only two or three of its cases could be prosecuted criminally each year by the U.S. Attorney’s Office.
‘Outstanding Lawyer’
The additional attorneys “are encouraging,” Sanders says. “We’ve had a shortage of manpower to do cases.”
Sanders, a tall and trim bachelor who stays fit by jogging three to four miles every morning, is well suited to handle his new duties, former colleagues say. He possesses the people skills to manage his 100-person staff and work with inexperienced employees, associates say. And he has the legal judgment to decide what cases are worth pursuing, they say.
“He’s an outstanding lawyer, has extremely good judgment and common sense, and is very personable on top of that,” says Einhorn, who encouraged Sanders to apply for the job. “In an office with a largely inexperienced staff, that judgment and experience is invaluable.”
Terree A. Bowers, Sanders’ former boss as chief of the U.S. Attorney’s major fraud section in Los Angeles, calls his former staffer “one of the finest trial attorneys to ever come through our office. He has substantial experience in a wide variety of cases, and excellent judgment.”
Sanders’ extensive experience at both the SEC and Justice Department should enhance cooperation between the two agencies. Indeed, Sanders’ whole career has been spent at the two.
After getting a law degree from the University of Tulsa in 1973, Sanders went straight to a post as staff attorney and branch chief (a middle-level managerial position) in the SEC’s Chicago office. In 1980, he moved to the U.S. Attorney’s Office, first in Chicago and then in 1985 to Los Angeles, where he prosecuted several securities cases.
Most recently, he conducted the government’s insider trading case against Alvin DeShano, an official of Carl Karcher Enterprises, the Anaheim-based fast-food chain. DeShano was acquitted after two days of jury deliberations, but observers and colleagues credit Sanders with presenting the case skillfully.
In his new job, Sanders plans to emphasize the same type of insider trading and penny stock fraud cases targeted under Einhorn.
“Irv was very successful as a regional administrator. He brought very significant cases and really developed a greater working relationship with the U.S. Attorney’s Office,” Sanders says. “I just think I’ll continue that. I don’t see any change in focus.”
Sanders, who says he plans to commit at least three years to his new post, acknowledges that he will still be hampered by staff and budget limitations. Senior SEC staff attorneys, who earn $50,000 or more annually, could jump to the private sector and double their salaries, Einhorn notes. Regional administrators generally make between $70,000 and $78,000, Einhorn adds.
But the problem of lower salaries exists in all government agencies, Sanders says. You have to accept it and move on, he says.
“You have to pick and choose your cases because of limited resources. So we’ll try to pick cases that have the most significant impact” in protecting the investing public and deterring prospective wrongdoers, he says.
“Luckily,” he adds, “the cases we have are interesting.”
THE BIG LOS ANGELES CASES Sampling of major cases handled or referred by the SEC’s Los Angeles office in recent years, with date case was filed. SEC vs. Banowsky March, 1989 Civil charges against former Pepperdine University President William S. Banowsky, charging him with insider trading in stock of Thrifty Corp. Settlement called for Banowsky to disgorge $442,838 in profits and pay a $311,614 fine. SEC vs. Karcher April, 1988 Civil insider trading charges against 14 defendants, including chief Carl Karcher, other employees of the Carl Karcher Enterprises fast-food restaurant company and relatives. Most cases settled with disgorgement of profits or fines. Some cases pending. One defendant, Alvin DeShano, was acquitted on criminal charges. SEC vs. R.G.Reynolds Enterprises April, 1988 Civil charges of selling unregistered securities and securities fraud against Richard (R. G.) Reynolds, host of an investment-oriented radio show in Southern California. Case pending. U.S. vs. Minkow January, 1988 Criminal cases against Encino carpet cleaning entrepreneur Barry J. Minkow and others. Minkow found guilty on 57 counts of securities fraud, mail fraud, bank fraud and other charges, and sentenced to 25 years in prison and restitution of $26 million. SEC vs. Texscan September, 1987 Civil charges of filing inaccurate financial statements and insider trading against former employees of Arizona cable TV equipment firm. Injunctions obtained against all defendants, with some disgorging profits or paying penalties. SEC vs. Kaypro September, 1987 Civil case against the San Diego-based computer firm and Chairman Andrew F. Kay charging them with filing inaccurate financial statements. Case settled with an injunction.
