Regional SEC Chief Vows Crackdown

There’s a new Wall Street sheriff in town: Valerie Caproni, 43, is the new regional director of the Pacific office of the Securities and Exchange Commission, the U.S. agency that enforces securities laws.

Only on the job a few weeks, Caproni has some priorities that go to the heart of investor protection: Crack down on insider trading of stocks; get tough on municipal bond fraud; and speed up the time it takes to close SEC enforcement cases.

A Georgia native, Caproni, who succeeds Elaine Cacheris, who recently left the SEC, is no stranger to difficult cases. She was chief of the criminal division for the U.S. attorney’s office in Brooklyn, N.Y., where last year she successfully prosecuted the killers of Yankel Rosenbaum, a Hasidic scholar, in a highly charged case.

She also successfully prosecuted Louis Malpeso Sr., a member of the Colombo crime family, for conspiracy to commit murder.

In her new job, Caproni, based in Los Angeles, oversees a staff of 180 in the SEC’s L.A. and San Francisco offices, and supervises enforcement in nine Western states.

Caproni was interviewed by Times staff writer Debora Vrana.

Times: Your experience is with criminal cases, but the SEC brings civil cases against securities scammers and other wrongdoers. How will your criminal-case background help in your new role?

Caproni: In the area of securities violators, we are seeing more and more people who are just out-and-out criminals. We’re not talking technical violations of people who didn’t keep the right records or said something they shouldn’t have said when talking to a customer. A lot of enforcement actions we’re taking right now involve people who are just plain thieves.

We need to join forces with the criminal [prosecution] authorities to get more bang for the buck against the people who are only going to be stopped with criminal actions.

*

Times: How can you boost cooperation between the SEC and the U.S. attorney’s office?

Caproni: In some respects, criminal prosecutors and SEC enforcement lawyers don’t quite speak the same language. I’m hoping as I learn the SEC language, I can serve as a translator back and forth. Based on my conversations up to now with the U.S. attorney’s office in the region, all are enthusiastic about securities fraud cases. Everyone recognizes this is an area where people are losing a lot of money.

*

Times: Some in the local financial community have told me they believe this SEC office doesn’t move as quickly as it could and question why enforcement cases take so long. Is that fair?

Caproni: I haven’t been here long enough to know whether that’s a fair criticism. My sense is that current cases in the Pacific region are not that old.

Having said that, one of my goals is to shorten that time more. When you are talking about conduct that occurred two years ago, three years ago, it’s hard on everybody. It’s hard on witnesses, it’s hard on the defendants, so I think it’s good for everyone for the length of time between the misconduct and the case being brought to be shortened.

*

Times: With SEC employee turnover last year at 31% in the San Francisco office and 35% in Los Angeles, coupled with the relatively low salaries at the SEC compared to what Wall Street is paying, do you have sufficient tools to effectively police this region?

Caproni: Well, obviously I would like more staff and I would like my staff to be paid better. Everyone says that. But the short answer is I think we do [have the tools]. We’ve got a very devoted, smart staff who are in government because they want to do the right thing.

*

Times: Southern California has a reputation as a hotbed for securities fraud. Is that overstated?

Caproni: There’s a lot of it elsewhere too. On the other hand, we see an awful lot of it here, especially “boiler room” activity. It’s something we are going to be looking at.

*

Times: Do you have a specific message for that group of scammers?

Caproni: If you are running a boiler room and engaging in unlawful practices, the likelihood is you are going to get caught. And if you get caught, the likelihood is there isn’t just going to be a proceeding to make you cease and desist; you may well be prosecuted and you may well go to jail.

*

Times: Southern California also has many tiny satellite offices of major Wall Street brokerages. Some people worry that far-flung offices can be havens for bad brokers who abuse customers.

Caproni: Well, it’s certainly harder for brokerage firms to supervise if they’ve got two people in a branch office way out in the desert somewhere. That’s a problem. It’s a problem for the [brokerages] and it’s one they’ve got to deal with.

If you [a brokerage firm] have a licensed broker that is taking advantage of your customers, the firm has an obligation to supervise its employees. I, for one, am not going to have a lot of sympathy with broker dealers who come in and say, “Oh well, we told him not to do that.” Well, that’s not good enough. If you are handling other peoples’ money, and you have reason to believe an employee may be doing something wrong, even if he’s one of two employees in an office 500 miles away, you better act on it.

*

Times: How big a problem is insider trading of stocks?

Caproni: We are always looking at insider trading. It is always disturbing when a company has a positive or negative announcement and you see trading volume the day before the announcement going in the right direction. It doesn’t take a brain surgeon to know that somebody’s trading on inside information.

We are going to look carefully and critically at all cases that could possibly be insider trading, especially those involving executives at the company or professionals working on financings for the company. People have got to realize the danger of getting caught is sufficiently high so that they are not going to do it anymore. We are going to pick our targets so that the message is sent out to everyone that this won’t be tolerated and is not worth the risk.

*

Times: What about underwriting and sales practices of high-risk municipal bonds? This is an area identified by SEC Chairman Arthur Levitt as a top enforcement priority.

Caproni: It is. Just in the couple of months I’ve been here my sense is it’s an area that needs attention, and we have people who are paying attention. You look at some of these deals here in California and my initial reaction is: Who would buy these bonds?

Particularly in California, some of the deals I’ve spoken to staff members about, the problem is not in the disclosure; there is disclosure that the revenue stream to repay the bonds is shaky at best. That leads me, as a skeptical prosecutor, to wonder if there aren’t sales abuses where people are selling these bonds in ways that suggest they are a secure place to put your money. Even though it’s a municipal bond, that doesn’t mean it’s always a secure investment.

*

Times: What is the No. 1 danger facing investors?

Caproni: Well, for unsophisticated investors, it’s being drawn into what is just a pure scam, a Ponzi scheme or pure fraud. Particularly as more and more people get into the stock market, and as there are more companies that people can see, like Microsoft, where early investors who got in on the ground floor and have become bazillionaires; everyone wants to be the next bazillionaire.

Investors have got to be skeptical. If they get a call out of the blue saying, “This is the next Microsoft,” beware; it’s probably not.

*

Times: What general advice do you have for individual investors?

Caproni: The people who tend to get preyed on are those who don’t put down the phone, who are willing to talk [to brokers selling securities over the phone]. These people who are working in boiler rooms are very good. They are probably going to spend a lot of time on the phone, making an investor think this broker is their friend.

Anyone who has elderly parents or anyone who might fall prey to someone like that, do what you can to keep track of what they are doing with their money. Even legitimate brokerage firms have rogue brokers, and they put people in investments that are entirely inappropriate for them, and they will do it in ways that frequently the customer doesn’t even know what happens.

So if you have a family member who might be in that situation, take a look at their account statements. Ask questions. If you don’t get satisfaction from the broker, ask the broker’s manager. Move it up the chain of the brokerage until you get someone who is listening to you and is doing the right thing by your family member. If you don’t get satisfaction going up the chain at the brokerage, call us.

*

Times: What if someone thinks they know of a scam? Do you take anonymous tips?

Caproni: They can give us a call. We get anonymous information frequently. If it’s something that makes sense, we track it down. The more information we get, the better. If someone believes they have been defrauded, they should give us a call: (213) 965-3998.