WASHINGTON - Securities and Exchange Commission sanctions have fallen to their lowest level since 2002 after Republican commissioners complained that heavy penalties hurt investors.
The SEC, led by chairman Christopher Cox, levied $1.6 billion in fines and illicit profits in the year ended Sept. 30, compared with more than $3 billion in each of the previous three years. In 2002, when Congress passed the Sarbanes-Oxley corporate governance law, the total was about $1.4 billion.
"The cases they're bringing these days are much smaller," said James Cox, a securities law professor at Duke University who is not related to the SEC chairman. The SEC has "a new ethos about penalties," based on concern that "savaging" companies with fines amounts to punishing investors.
The SEC ratcheted up financial sanctions more than 40 percent after Sarbanes-Oxley stiffened audit requirements, the commission's data show. The surge sparked a partisan dispute, with Republican commissioner Paul Atkins saying costs are borne by shareholders and former Democratic commissioner Roel Campos saying fines deter fraud.
Business groups have complained, too. The Committee on Capital Markets Regulation, chaired by President George W. Bush's former economic adviser, Glenn Hubbard, and ex-Goldman Sachs Group president John Thornton, wrote in a 2006 report that fines "have grown disproportionately large relative to their deterrent benefit."
Cox, who served in Congress for 17 years as a California Republican, stepped into the debate after being sworn in as SEC chairman in August 2005. The SEC adopted new corporate penalty guidelines five months later.
It now weighs "the presence or absence of a direct benefit to the corporation and the degree to which the penalty will recompense or further harm injured shareholders," Cox said in June.
"I don't believe that lower penalties . . . indicate there is less fraud," said Campos.
Atkins has called a $35 million penalty imposed on Nortel Networks Corp. for allegedly manipulating its earnings a "public relations gesture" that did nothing to protect investors.
The debate goes to the core of the SEC's role in combating fraud, said former SEC commissioner Harvey Goldschmid, now a professor at Columbia Law School. "The issue is whether the decrease in civil money penalties and disgorgements will send the wrong message and decrease accountability."