When Halliburton settled charges by the SEC that it changed its accounting method without notice, observers seemed most interested in the $7.5 million fine, or the fact that the dispute stemmed from the days when Vice President Dick Cheney ran the company.
Overlooked was the fact that the company wasn't fined for failure to disclose a 1998 change to its accounting practice.
Rather, the SEC imposed the penalty for not fully cooperating with its investigation.
The penalty against Halliburton, "serves as yet another reminder that the SEC will not tolerate lapses by companies that delay or hinder the Commission's investigative processes," said Spencer Barasch, enforcement head in the commission's Fort Worth office.
"The penalty, in part, reflects the SEC's view that there were lapses in the company's cooperation with the SEC staff, which had the effect of delaying the production of information and documentation necessary to an expeditious completion of its investigation," Halliburton acknowledged in its own statement.
Halliburton’s fine is the latest in a growing trend which indicates that the Commission is fining companies for not fully cooperating with investigations.
Back in March, Lucent Technologies said it agreed to pay a penalty of $25 million as part of a settlement with the SEC stemming from an accounting probe. "The staff made it clear that the penalty is not based on any additional violations of law, but on what the staff considered Lucent's lack of cooperation during the investigation and certain actions taken by the company subsequent to the agreement in principle," Lucent said in a statement at the time.
Lucent’s announcement came one week after the SEC fined Banc of America Securities $10 million for failing to produce documents in an SEC probe. BAS "repeatedly failed to promptly furnish documents requested by the staff, provided misinformation concerning the availability and production status of such documents, and engaged in dilatory tactics that delayed the investigation," the Commission charged.
Other companies recently fined for not cooperating with investigations include Xerox, AIG and Dynegy.
Cutler
"Any serious violation of the federal securities laws should be penalized with a monetary sanction," said Stephen M. Cutler, the SEC’s Director of the Division of Enforcement, in a speech delivered back in April.
He stressed that the extent of a violator's cooperation is one of three core factors that would lead to a monetary penalty. "If, for example, an entity—whether public company, accounting firm, or regulated entity—or its counsel is recalcitrant during an investigation, misleads the staff, or fails unreasonably to comply with Commission processes, the staff is very likely to seek a penalty in settlement," he explained. "The penalty is likely to be particularly substantial if the violator's underlying conduct has also resulted in significant investor harm."
On the other hand, he assured that providing extraordinary cooperation would also play a role in the level of the fine. “Being forthcoming during the investigation, and implementing appropriate remedial measures (including, in the case of an entity, appropriate disciplinary action against culpable individuals), can contribute significantly to a conclusion by the staff that a penalty recommendation should be more moderate in size or reduced to zero," Cutler added. "For example, in two recent actions involving Reliant Resources and Conseco, Inc., the Commission declined to impose civil penalties on either public-company respondent."
Thomsen
Linda Thomsen, deputy director of enforcement at the SEC, warns not to judge the size of a company’s fine to determine the magnitude of the infraction. "If the number is higher, it doesn’t tell you that the conduct is worse," she stresses. "There are too many factors to say that the number tells you everything."
She is quick to point out that penalties encompass many actions, including the nature of the violation as well as how well or little a company cooperates with the probe.
One reason why the SEC is increasingly imposing fines in general is because under Sarbanes-Oxley, the penalty money goes to the victims instead of the Treasury.
Thomsen points out that there is always a concern that imposing a fine can, in turn, hurt shareholders. But, she adds, "If you can get [money] back to them, it neutralizes it a bit."
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