Fraud Penalty Standards Revised

From Associated Press and Bloomberg News

The Securities and Exchange Commission on Wednesday announced new guidelines for fining companies for fraudulent conduct, addressing an issue that has split the agency's commissioners along political lines.

The standards are meant to bring "clarity, consistency and predictability" to the SEC's enforcement efforts, Chairman Christopher Cox said at a news conference.

Among the factors the SEC will consider in assessing fines: whether a company benefited from the alleged wrongdoing, whether a penalty would further harm shareholders, whether there was widespread complicity and how well management cooperated in the SEC's probe.

To illustrate, the SEC announced separate settlements of accounting-fraud charges with two software companies, McAfee Inc. of Santa Clara, Calif., and Applix Inc. of Westborough, Mass.

McAfee is paying a $50-million civil fine; Applix agreed to tighten its accounting policies but isn't being fined.

McAfee benefited from the alleged misconduct by using inflated stock for acquisitions, but Applix did not gain from its alleged fraud, SEC enforcement chief Linda Thomsen said.

In addition, McAfee is financially strong and its investors are unlikely to be unduly harmed by the $50-million fine, but Applix is relatively small and its stockholders could be hurt, she said.

The fine guidelines were adopted unanimously by Cox and the other four SEC commissioners after about 40 hours of discussion in private meetings. There are three Republican commissioners and two Democrats.

With the standards, the SEC is addressing an issue that has sparked criticism from corporate leaders. Without guidelines, "it too often feels like [a fine] is simply what someone at the agency feels like demanding on any given day," said former SEC enforcement chief William McLucas.

McAfee shares gained 85 cents to $27.95. Applix added 26 cents to $7.88.

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