SEC to Give Firms Credit for Reporting Misdeeds

Federal securities regulators are laying out a new policy that gives companies credit for coming forward to report misconduct, which could possibly accord them more lenient treatment in return.

The action announced Tuesday by the Securities and Exchange Commission came a day after its new chairman promised a gentler relationship with accountants.

After dealing with the stock market shutdown caused by the Sept. 11 terrorist attacks, the SEC, under Chairman Harvey Pitt, appears to be moving securities regulation in a new direction.

Pitt, a lawyer who was named to the post by President Bush last spring, has said he wants to see “real-time” enforcement and cut the long periods from the start of an SEC investigation to the imposition of fines and sanctions.

Pitt also has said he believes that securities laws must be reviewed because many are obsolete and impose an unfair burden on market participants--striking a tone favoring an easing of government regulation.

The SEC laid out the new enforcement policy Tuesday in explaining its decision not to take action against Seaboard Corp., a Kansas company that produces and processes pork and also generates energy, which the agency had investigated for alleged financial reporting discrepancies.

The agency had sued only Gisela de Leon-Meredith, the former controller of a Seaboard agricultural subsidiary, Miami-based Chestnut Hill Farms, alleging she made improper entries in its financial statements and tried to conceal the errors.

The SEC said Seaboard avoided a suit because it investigated the errors voluntarily, eventually fired De Leon-Meredith and cooperated fully with the agency.

In a settlement, De Leon-Meredith agreed to refrain from future violations of securities laws, without admitting or denying guilt.

The SEC said it will use four guidelines to assess a firm’s cooperation with inquiries into misconduct, including how a company polices itself after uncovering fraud and whether it dismisses insiders responsible.

“Crediting those who seek out, self-report and rectify illegal conduct is critical to achieving the [SEC’s] goal of ‘real-time’ enforcement,” said Stephen Cutler, the agency’s acting enforcement director.

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