SEC top cop to pursue Net fraud
By William L. Watts, CBS MarketWatch
Last Update: 6:11 PM ET Apr 5, 1999
SEC complaint unit
NewsWatch
WASHINGTON (CBS.MW) -- Internet fraud has replaced insider trading as the Securities and Exchange Commission's top worry, the agency's enforcement chief said Monday.
Speaking at the National Press Club, SEC enforcement division chief Richard Walker acknowledged that the agency's resources have been strained by the growth of Internet fraud. Nevertheless, "it would be a mistake to underestimate our commitment to attacking fraud on the Net," he said.
Walker drew a parallel between the daunting task of policing Internet fraud and the challenges presented by policing insider trading in the past. Former SEC Chairman Richard Breeden knew that the only way to quash insider trading was by meting out stiff penalties, famously warning that those who engage in insider trading should be left "naked, homeless and without wheels."
Walker paraphrased Breeden, warning that Internet fraud artists "will be left naked, homeless and without modems."
The SEC, which has an annual budget of $300 million and an enforcement staff of around 850, has no new or additional resources available to do the job, Walker warned. Some members of Congress have expressed interest in making available additional resources. Sen. Susan Collins, R-Maine, who chairs a Governmental Affairs subcommittee on investigations, said last month she would consider drafting legislation that would aid regulators in fighting online fraud.
The SEC's sharper focus on the Internet has occurred amid a "bull market in securities fraud," propelled by investors "magnetically drawn" to markets either because they cannot help but notice the Dow ($INDU) breaking new records almost daily or because they want to get rich quick by finding the next hot Internet stock.
Tool for cons
The Internet has transformed the way people invest by providing cheap, quick and easy access to vast sources of investment opportunities, Walker said. "Unfortunately, the access it has provided to potential investors on a relatively anonymous basis has also made the Internet a favorite tool for many con artists."
Walker outlined the SEC's approach to combating fraud in the microcap arena, highlighting efforts to make criminal prosecution a real threat. The SEC has been successful in urging criminal prosecutors to bring forward more securities cases.
"I can assure you that the prospect of being led off the premises in handcuffs will do more to deter a 21-year-old kid from committing fraud than anything the SEC can do," Walker said. The SEC has only civil jurisdiction and cannot put fraudsters behind bars itself.
"Just as increased criminal prosecution has helped to make real inroads in the microcap arena, criminal prosecution persons committing fraud on the Internet should likewise help to deliver a strong message to would-be fraudsters," Walker said.
In addition to stepped up civil and criminal prosecution efforts, help may soon be on the way from Congress, Walker said. He noted that Collins has announced her intention to sponsor legislation that would make it easier for the SEC to bring cases and bar violators from the securities industry.
Extend jurisdiction
One proposal by Collins would allow the SEC to bar broker-dealers who have violated the law not just from the brokerage industry, but from promoting microcap stocks as well. Under current law, a broker barred from the industry by the SEC, even for fraud, remains free to come back as a "promoter." The SEC has no direct regulatory jurisdiction over promoters, creating a path that allows corrupt brokers to continue deceiving investors, Walker said.
Collins has also proposed a measure that would allow the SEC to bring follow-up administrative proceedings based on actions by state securities regulators. Walker said state regulators have been actively cracking down on microcap and Internet fraud, but noted that their remedies generally apply to activities within their borders. The Collins proposal would allow the SEC to make such orders effective nationwide. |
