SEC head: Fraud is lessening

Scott Lindlaw

Wednesday, July 23, 2003 | 9:49 a.m.

WASHINGTON -- The Bush administration says it has helped net more than 250 white-collar crime convictions, deterred fraud in boardrooms and restored investor confidence in the year since President Bush established a panel to combat corporate corruption.

"I hope we've seen the worst of it," Securities and Exchange Commission Chairman William Donaldson said Tuesday after meeting with Bush for a progress report. "From here on out, the country and the nation, the business community is well informed of the risks" of committing corporate fraud, he said.

Bush's Corporate Fraud Task Force, with members from an array of federal departments, has taken part in almost all corporate fraud cases brought by federal prosecutors over the last year, according to the White House.

Prosecutors have obtained more than 250 corporate fraud convictions, including at least 25 former CEOs; charged 354 people with corporate crime; and obtained fines, forfeiture and restitution worth more than $85 million, the administration said.

"We are trying to react to this problem in a swift manner, and to conduct our investigations and prosecutions in a different way and not let them linger on," said Deputy Attorney General Larry Thompson. "And I do think that that sends a message of deterrence."

Not mentioned by Thompson and Donaldson were former Enron chairman Kenneth Lay, a Bush friend and contributor, or former chief executive Jeffrey Skilling. Neither were charged, although Enron figured large in the wave of accounting scandals.

The energy trading company, which spiraled into bankruptcy in late 2001, was the first big corporate scandal in what became a stream of accounting failures that engulfed WorldCom, Global Crossing, Adelphia Communications and more.

The highest-ranking Enron executive charged to date is former chief financial officer Andrew Fastow, who faces nearly 100 criminal charges including fraud, money laundering, conspiracy and obstruction of justice. Fastow has pleaded innocent and is free on $5 million bond as he awaits trial.

The government's first legal action against Lay and Skilling came last month when the Labor Department filed a civil lawsuit against the company and several former executives and directors, seeking to recover hundreds of millions of dollars in retirement money that Enron employees lost.

Enron and other scandals also prompted Congress to enact the most sweeping anti-fraud and corporate reform legislation since the Depression. The Sarbanes-Oxley Act became law about three weeks after Bush formed his task force.

David Ruder, SEC chairman during the mar- ket collapse of October 1987, said the new law and the task force should share credit for sending corporate America a message that white-collar fraud would not be tolerated.

"Both Sarbanes-Oxley and increased enforcement have had strong roles in giving a message both to corporate executives and to the investing public that the government is taking strong actions to prevent corporate fraud," said Ruder, who currently teaches law at Northwestern University.

"The task force in particular has been more active in seeking criminal penalties than has ever been seen before" in securities fraud, Ruder said. "Investors are going to respond favorably when they know there is an active enforcement program out there."

Donaldson suggested the administration deserved partial credit for a stock market rally in recent months.

"When you're talking about confidence in a regulatory agency, and in my case the SEC, I think that our actions speak pretty loudly in terms of what we've done," he said. "I think there's a building confidence that the cop is on the beat."