Under former Chairman Harvey L. Pitt, the SEC in October 2001 issued a Section 21(a) report which outlined the factors taken into account in evaluating cooperation with enforcement investigations. Much has been written about the standards for cooperation. In this era of ever increasing fines and sanctions, however, many have wondered if Seaboard lives.
SEA Release No. 44969 (October 23, 2001);
Recent action by the Commission in three cases suggests that the policy adopted under Mr. Pitt may still be viable. On April 13, 2006, the Commission announced an enforcement action against three former officers of a MetLife, Inc. subsidiary for a multiyear financial fraud which caused the financial statements of MetLife and its subsidiary to be materially false. At the end of the release, the Commission announced that it was not brining any enforcement action against MetLife because of its cooperation which, “consisted of prompt self-reporting, an independent internal investigation, sharing the results of that investigation with the government, disciplining responsible wrongdoers, and implementing new controls designed to prevent the recurrence of the improper conduct.” Litigation Release No. 196556 (April 13, 2006).
The previous week, additional issuers announced that the staff is recommending to the Commission that it close two other enforcement investigations, apparently because of cooperation by the issuers. Officials at Catalina Marketing Corporation announced that the SEC staff is recommending closure of the SEC investigation into questions regarding its financial statements. The staff had been investigating revenue recognition timing issues at a subsidiary of the company. Catalina reported that it has cooperated with the SEC. Similarly, Career Education Corporation announced that the staff at the SEC’s Midwest Regional Office is recommending that the investigation into certain financial reporting issues be closed. Career Education had previously reported that an internal investigation concluded that the company had not violated the federal securities laws but that employees had engaged in wrongful activity. The company took steps to improve its internal controls and expand its compliance infrastructure. Both of these actions were reported in E-Corporation Compliance News, Vol. 3, No. 15, April 13, 2006.
While the SEC’s decision in the MetLife matter is clearly based on Seaboard, it is not clear whether Seaboard is also the basis for the recommendation to not take action against Catalina and Career Education. Nevertheless, the three releases are encouraging because they suggest that the SEC will reward efforts by issuers to cooperate and promptly resolve matters by not brining enforcement actions and also that Seaboard lives.