SEC Enforcement Chief, Credited With Helping to Repair Agency’s Image, Resigns
Stephen Cutler, the Securities and Exchange Commission enforcement chief who spearheaded the federal government’s crackdown on corporate wrongdoing, said Thursday that he would step down next month to return to the private sector.
Cutler shepherded some of the largest cases in SEC history during his 3 1/2 years running the enforcement unit, including the record $750-million fine paid by WorldCom Inc. and the $1.4-billion settlement with 10 Wall Street investment banks over conflicts of interest involving stock analysts.
“I can’t say I’m leaving at a time when the job is done because the job is never done,” Cutler said. “But I’m leaving at a time when no one can doubt we can do this job.”
Cutler, 43, is widely credited with helping to restore the SEC’s image, which was dented by criticism early in his tenure that the agency was too lax in ferreting out financial skulduggery.
The agency has meted out increasingly tough penalties in recent years, logging more than $6 billion in fines and disgorgement of ill-gotten gains since late 2001.
While New York Atty. Gen. Eliot Spitzer became the swaggering public face of securities enforcement, Cutler played an equally important behind-the-scenes role hammering out big settlements with companies under scrutiny.
Last year, for example, Cutler negotiated the financial penalty for trading abuses by New York Stock Exchange “specialist” firms that match buy and sell orders for stocks. Fed up after months of dickering over the terms, Cutler said he gave the firms an ultimatum: Take the deal or face lawsuits.
“I said, ‘OK, we’ve done this enough. This is what the settlement is going to be,’ ” Cutler recalled. The lawyers relented, and the firms agreed to pay a $247-million settlement.
“The enforcement division just flat-out got better under Cutler,” said Lynn Turner, a former SEC chief accountant.
No successor was named. Linda Chatman Thomsen, Cutler’s chief lieutenant, is considered a top contender for the job.
“I think that Linda Thomsen is hands down the most likely candidate,” said one securities lawyer who requested anonymity. “She’s been running the division with Steve. I think it makes perfect sense.”
The shift in leadership comes as some business lobbyists are complaining about heavy-handed regulation from the agency. SEC Chairman William H. Donaldson, who has advocated rules that change the way companies are run, has been the principal target.
But Cutler’s enforcement operation also has drawn some fire, such as for its insistence on record-setting fines as a condition to settle cases.
“There’s too much of a tendency to think every alleged violation of a rule deserves a life sentence,” said William McLucas, a former SEC enforcement chief.
Nonetheless, few observers predict that the new leader will ease off on the corporate crackdown. The enforcement operation is generally viewed as less political than the commission itself, whose members are appointed by the White House. And the SEC remains sensitive to criticism that it was too soft in the past.
“I just don’t think that a change in who’s the director will mean a change to be more lenient,” said Dixie L. Johnson, a partner at law firm Fried Frank in Washington.
Cutler, who is married and has two children, plans to take a couple of months off before deciding on his next step.
He is likely to have plenty of offers.
Two former SEC enforcement chiefs now serve as general counsels for top Wall Street investment banks -- Gary Lynch at Credit Suisse First Boston and Richard Walker at Deutsche Bank. And McLucas is a top corporate defense attorney at Wilmer, Cutler & Pickering, where Cutler worked before joining the SEC. (Stephen Cutler is not related to that firm’s nameplate partner, Lloyd Cutler.)
Cutler, who cannot advocate matters before the SEC for one year after he leaves, became enforcement chief just as corporate America’s scandals began to flare.
After joining the SEC as deputy enforcement director in January 1999, he became head of the division in October 2001 as Enron Corp. was seeping into the headlines. Accounting scandals at WorldCom, Adelphia Communications Corp. and other companies soon followed.
Cutler’s announcement comes amid a continuing probe into the mutual fund industry. The enforcement division is believed to be in the final stages of deciding whether to bring charges against Los Angeles-based American Funds related to so-called revenue-sharing payments it made to brokerages that sold its funds. The company denies any wrongdoing.
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Hamilton reported from New York and Peterson reported from Washington.
