New York Times.com: SEC Wants Execs Dismissed in Probes
By REUTERS
Published: April 3, 2004
WASHINGTON (Reuters) - When the U.S. Securities and Exchange Commission launches a formal investigation, it increasingly expects the targeted company to swiftly dismiss executives suspected of wrongdoing, securities lawyers say.
``There is that expectation now'' as a sign of good faith and a willingness to cooperate, said Jacob Frenkel, a partner at the law firm of Smith Gambrell & Russell in Washington and a former SEC official and federal prosecutor.
``It's not an affirmative expectation,'' he added, but the SEC would view ``a decision not to demand the resignation of an official as a failure to take corrective measures quickly.''
In the case of Royal Dutch/Shell (SHEL.L) (RD.AS), for instance, more dismissals may follow those of Chairman Phil Watts and oil and gas division chief Walter van de Vijver, said Lynn Turner, former SEC chief accountant.
Watts and van de Vijver were fired by Shell on March 3, 13 days after the world's third-largest oil group said it was cooperating with a formal SEC probe of reserve accounting.
``I wouldn't be surprised to see more go'' at Shell, said Turner, now a professor at Colorado State University.
The SEC first set forth clear guidelines for cooperating with its investigations in October 2001 in a case involving Kansas food and shipping group Seaboard Corp.Seaboard worked hard to help the SEC investigate a former controller of one of its units who was accused of causing its books and records to be inaccurate and then covering it up.
The employee was immediately dismissed and the company took rapid steps to strengthen its financial reporting. The SEC announced it was taking no further action against Seaboard and held up the case as a model in a public statement.
In doing so, the agency issued benchmarks for cooperation that it said it would favor: self-policing by a company before discovery of misconduct; prompt and thorough self-reporting by the company of misconduct; timely sharing of information with authorities; rapid internal reforms and ``dismissing or appropriately disciplining wrongdoers.''
The Seaboard criteria ``have become not so much something that you get credit for as the expected minimum standard,'' said Samuel Winer, a partner at the law firm of Foley & Lardner in Washington and a former SEC enforcement division attorney.
``The environment is a little more high stress for defense lawyers,'' he said.
An SEC spokesman declined to comment.
Since the Seaboard ruling, ``The DOJ and the SEC have included in their assessment of cooperation a look at how quickly boards toss out senior management suspected of financial fraud,'' Frenkel said.
``The judicial system still operates on the presumption of innocence until proven guilty. Unfortunately, where there are corporate fraud charges, boards are almost expected to act on a presumption of guilt,'' he said.