"After Sarbanes-Oxley: The New Era of Securities Fraud Enforcement" subject of Criminal Justice program

SEC Commissioner Annette L. Nazareth presents the keynote speech on "The SEC's New Guidance on Corporate Penalties."

Responding to a question about the current priorities of the SEC, Linda Chatman Thomsen at a recent program said that their priorities have been the same for some time – to ensure that they are "covering the landscape." Thomsen, director of the Division of Enforcement of the SEC, continued by saying that it was important that the SEC have a presence even in those areas that appear to be quiet, because in reality they aren't. Beyond that, Thomsen said that the retail sector, generally speaking, is a key priority because the integrity of the market is critical. She also pointed to options and hedge funds as two areas of business that are hot in today's securities fraud realm.

The "National Institute on Securities Fraud" was held in Washington, D.C., on Sept. 28-29, and was sponsored by the ABA sections of Criminal Justice, Litigation and Business Law and the Center for Continuing Legal Education.

Debra Wong Yang, U.S. Attorney for the Central District of California said that securities fraud enforcement is different than 10 years ago. There are prosecutions going on around the country, in lots of different offices, she said. Corporations are national in scope, and cases have moved to different areas of the country. And different offices will handle cases differently, although, Yang said, the Thompson Memorandum – a memo from Deputy Attorney General Larry D. Thompson titled, "Principles of Federal Prosecution of Business Organizations" – does provide some guidance.

In a discussion of parallel investigations, Robert Morvillo of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer in New York said that in most cases, he prefers that agencies work together on cases because it avoids conflicting approaches. Parallel investigations have become difficult, Yang said, because while the SEC has seen an increase in resources, many resources within the Justice Department have gone to fighting the war on terror. James Cox, professor of law at Duke University, noted that securities fraud is one area in which the additional resources provided have made a definite impact on enforcement and penalties. "We have seen a real bang for the buck," said Cox.

In speaking to trends, Thomsen opined that more securities fraud cases are going to trial now than 10 or 11 years ago when she worked in the trial division of the SEC. Financial fraud is very complex, said Thomsen, and good counsel is essential. Cox lamented that in today's world, financial fraud trials have almost become a "class" issue. Officers in a corporation have insurance, and that leaves the mid-level executives carrying out policies and taking on the culpability. The Thompson Memorandum, continued Cox, inserted government into financial fraud cases, a comment that led to a lively discussion of attorney-client privilege and protection for employees, topics on which the ABA had taken a stand just over a month earlier.

Other areas discussed during the session included regulation versus criminalization of corporate actions, compliance and prosecution of the corporation versus individuals within the business.

Both Cox, of the SEC, and Yang, of the Justice Department, were speaking at the program on their own behalf and not in their official capacities.

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