SEC Corporate Fines Mark Fast Pace in ’04

The cost to U.S. companies of settling financial misconduct cases with the Securities and Exchange Commission remains high, with more than $500 million in SEC fines assessed so far in 2004, according to a Reuters analysis.

That pace would have the agency approaching last year’s record of $1.7 billion in fines from settlements worth more than $10 million each -- more fines than the SEC won in major settlements in the preceding 15 years combined.

The explosion in SEC penalties in recent years follows the rash of financial scandals involving companies including Enron Corp., Wall Street analysts, New York Stock Exchange traders and major mutual fund firms.

“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,” SEC Enforcement Division Director Stephen Cutler said in an interview.

As long as corporate misconduct merits it, he said, the SEC will demand high penalties. “For comparable conduct, you will see comparable fines,” he said.

As recently as 2002, the largest fraud fine ever levied by the SEC against a public company was $10 million, against office equipment maker Xerox Corp. in an accounting case.

In 2003, the SEC levied 20 fines of $10 million or more against public companies, including a $750-million penalty against WorldCom, recently renamed MCI Inc.

Even at today’s high levels, however, SEC fines -- which are often accompanied by forced disgorgements of ill-gotten gains -- may represent only petty cash to corporate giants. Of last year’s 20 largest settlement payouts, 10 were equal to 2% or less of the defendant’s 2003 profit.