SEC Revises Policy on Corporate Fines

Originally published in Financial Services Advisory Update, Volume 3, No. 1 February 2006

A recent change by the US Securities and Exchange Commission (SEC) is receiving praise for its thoughtful approach to imposing financial penalties upon corporations. On January 4, Chairman Christopher Cox announced that the SEC had revised the process for determining when to impose a fine on a corporation as a penalty for alleged securities violations. This announcement came on the heels of its settlements with two corporations—McAfee, Inc. and Applix, Inc. Through speeches and press statements, the SEC explained the factors that led it to impose a fine upon McAfee, but not upon Applix.

Under this new framework, the SEC will primarily consider whether the alleged violation resulted in a direct benefit to the corporation, and whether a financial penalty would recompense shareholders or result in further harm to them. Along with the two principal concerns identified, the SEC will consider