Is the S.E.C. Getting Tougher?


One of the criticisms that has been leveled against the Securities and Exchange Commission is that even when it has pursued cases it has not been tough enough in seeking sanctions for violations of the federal securities laws. Since the new year began, however, it seems that the agency has taken a couple of small steps to burnish its image as Wall Street’s top cop.

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The question is whether these are merely cosmetic moves or signal a tougher enforcement stance.

The New York Times reported last week that the S.E.C.’s commissioners unanimously rejected a proposed settlement with the former enforcement chief of its Fort Worth Regional office, Spencer C. Barasch, because he represented R. Allen Stanford’s firm shortly after leaving the agency. While working at the S.E.C., Mr. Barasch squelched efforts to investigate the firm, which was eventually accused of operating as a Ponzi scheme.

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Mr. Barasch’s requests to represent Mr. Stanford’s firm, which he eventually did on one occasion, were described in a scathing report issued by the S.E.C. inspector general that raised question about whether there was a violation of the conflict-of-interest restrictions on former government employees.
The Justice Department announced a settlement with Mr. Barasch that requires him to pay a $50,000 civil penalty for violating 18 U.S.C. § 207. The statute prohibits a former employee from representing a party in any matter in which the person was “personally and substantially involved” while working for the government. Although a violation could be prosecuted criminally, the Justice Department opted for a civil case, most likely because it could not prove intent to knowingly violate the law.

Mr. Barasch denied that he had violated the conflict-of-interest provision by representing Mr. Stanford’s firm. According to his lawyer, he settled the case “to avoid the expense and uncertainty of protracted litigation,” and “at no time has he compromised his honor or ethics, and we vigorously dispute any suggestion to the contrary.”

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