According to an article in the Wall Street Journal, the SEC is bringing fewer enforcement actions every year, despite growing evidence that Corporate America has learned few lessons from disasters such as Enron and Worldcom. In fiscal 2006, the number of enforcement actions commenced by the regulatory agency declined 10% from the previous year. This follows a pattern of fewer enforcement actions for fiscal years 2005 and 2004. According to the Journal, the SEC brought fewer than 600 enforcement actions for the fiscal year ended Sept. 30, 2006, compared to 630 in 2005 and 639 in 2004. In 2003, the SEC commenced an all time high of 679 enforcement actions.
These statistics come amid a Congressional investigation, spearheaded by Sen. Charles Grassly, regarding the SEC’s enforcement practices. The investigation was triggered by allegations of a former SEC attorney who claims he was terminated because he sought to depose John Mack, a highly regarded Wall Street executive, regarding an insider-trading investigation involving the hedge fund, Pequot Capital Management. Gary Aguirre, the former SEC attorney alleges that his supervisors precluded him from deposing Mr. Mack because of his deep political connections to the Bush administration. Mr. Mack was a key fundraiser for the Bush campaign in the 2004 election. A few weeks ago, the SEC informed Pequot and Mack that it would not file charges against them.
In its defense, the SEC points to a hiring freeze and staff attrition as the causes for its lighter caseload. According to Mr. Heine, the SEC’s spokesman, “there is no question that if the staff numbers had not declined in the last few years, we would have been able to bring more cases.” Others blame the SEC’s management for the decline, pointing to a five person committee that must vote on each new action.
Whatever, the excuses, in this post-Enron era of option backdating and insider trading scandals, there is no excuse for the SEC to be scaling back its enforcement activities.
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