SEC enforcement division: 'ratcheting up'.

• Author: Heffes, Ellen M.
• Position: FinancialREPORTING - Securities and Exchange Commission

Preparers aren't the only ones who are busy attending to the slew of new regulations. So is the enforcement division at the Securities and Exchange Commission (SEC). You can't read a newspaper or listen to business news without reading or hearing about yet more SEC actions.

It's no wonder. Since the corporate scandals and subsequent Sarbanes-Oxley Act of 2002, the SEC has been ratcheting up everything it does, including enforcement. With additional tools provided by Sarbanes-Oxley--a budget that's doubled over the past four years (having gone from $412 million in 2001 to $888 million in 2005) and more staff--one result is more investigations.

"The investigations are more complex, there is greater interest by others, including criminal and state prosecutors, and the sanctions we seek and obtain are higher," says SEC Deputy Enforcement Director Linda Thomsen. And, with people paying a lot more attention to things surrounding corporate governance, that's gotten more attention, too.

Along with more investigations and more aggressive settlement demands is more litigation. Thomsen says her division is involved in more and harder litigation. She notes differences between former relatively straightforward cases and today's cases. "When I first came here (starting in the SEC trial unit), many of the litigating defendants were not in the mainstream of the securities world. Now we're seeing many more defendants who are extremely 'well-heeled,' well defended [and] fighting hard, and are in the mainstream."

There is also a difference in the quality of the cases that are being litigated. This difference is visible not only in the SEC's world, but also in the criminal world. For example, Thomsen cites Bernard Ebbers (former WorldCom Inc. CEO), who was represented by one of the best defense lawyers in the country. It's the same for the legal representation for Tyco International's former CEO Dennis Koslowski and former HealthSouth chief Richard Scrushy. "To think that those three are all on trial for criminal violations associated with securities issues at the same time is pretty unusual," she says.

Thomsen doesn't expect this pace to continue, however, commenting that things are cyclical. "I think we have seen a change in culture," she says, quickly adding, "I'm hoping." Also, preparers are more vigilant about making sure they don't become complacent. "I think people are paying more attention, and with any luck, we will see fewer scandals."

In her role as deputy enforcement director, Thomsen works with Chief Enforcement Director Stephen Cutler to oversee the enforcement program, which has more than 1,000 employees, about one-third based in Washington, D.C., and others dispersed among 11 field offices. With her law degree, she...