The real reason that TRAV is not yet extinct: SEC Turnover Rate Leaves Agency Scrambling in Fight Against Fraud
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Securities and Exchange Commission has been
scrambling to replace an alarming number of experienced enforcement
staffers who have left for higher-paying jobs elsewhere.
While the SEC says it has been able to maintain its caseload, the agency's
strategy has increasingly been to target high-profile cases to send the
message that it is tough on all forms of stock fraud. With limited staff,
however, there's much that may go undetected.
Two-year turnover rates, from September 1996 through September 1998,
indicate that the biggest exodus was in New York. The SEC's biggest
regional office saw 54% of its 137-member enforcement staff leave --
including 57 of 88 attorneys. In San Francisco, 40% of the office's 25
enforcers left over the same period, while the Los Angeles office lost 34%
of its 68-member enforcement staff and the Chicago regional office lost
one-third of its 75 enforcers. Nearly all were attorneys. Even the SEC's
Washington headquarters wasn't immune: 27% of its 332 enforcers moved
on. Not all cities have felt as sharp a pinch: Smaller offices in Philadelphia;
Fort Worth, Texas; and Denver lost about 14% of staff during the same
period.
The enforcement staff, which includes lawyers, accountants, investigators
and examiners, is responsible for ferreting out fraud in the securities
business. The staff turnover "puts a strain on all of us in terms of training
and supervision, and getting the work out," said Richard Walker, who was
named head of SEC enforcement last April. He requested the two-year
turnover numbers for the agency's five regional offices after noticing
unusually high staff loss. The SEC's turnover rate for all employees is 12%
a year -- significantly above the 8% rate for federal agencies overall.
The SEC had 469 enforcement cases for the fiscal year ended Sept. 30,
down slightly from the prior year's 489. The earlier year included an
unusual 20 separate cases stemming from a single New York City broker
bust.
The SEC generally faces high staff turnover when markets heat up, chiefly
because it can't compete with the salaries offered by law firms and
brokerage firms. While enforcement staff attorneys make between
$39,300 and $101,000, they can command two to three times those
amounts in the private sector. Many are leaving for more lucrative jobs
after only a year or two, even though the SEC asks them to stay on at
least three years when they're hired. Traditionally, attorneys spend at least
five years at the agency.
An SEC plan to use $7 million in salary savings from the high turnover to
help retain experienced staff was nixed by Congress. So it will have to rely
on recruiting strategies, including internships and fellowships, and on a
strategy of hunting for lawyers beyond its traditional East Coast hiring
pool, largely because it can't compete on salaries.
The agency, however, has attracted high-quality senior officials over the
past six months. Recent recruits include Harvey Goldschmid, the new
general counsel, a former Columbia University law-school professor who
is an antitrust and securities expert. Valerie Caproni, a former assistant
U.S. Attorney for New York's eastern district, now heads the SEC's
West Coast regional office. And Annette Nazareth, former managing
director for Salomon Smith Barney's capital markets legal group, joined
Chairman Arthur Levitt's staff as a senior counsel.
Meanwhile, the cooling stock market may begin to stem the exodus --
much as the bear market of the early 1990s slowed SEC turnover.
"It's very possible that law firms will have less work available," said Mr.
Walker. "Then we'll be the beneficiary."
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