Newspaper article International New York Times

Infighting Limits S.E.C.'S Effectiveness

Newspaper article International New York Times

Infighting Limits S.E.C.'S Effectiveness

Article excerpt

A political battle has disrupted the case against the Computer Sciences Corporation, forcing on-again, off-again negotiations.

More than once this year, the United States Securities and Exchange Commission was close to securing a landmark accounting fraud case. Then it came undone because of divisions within the S.E.C. And now the case might be back on track -- unless it is not.

Behind the scenes at the regulator, an extraordinary political battle has disrupted the case against the Computer Sciences Corporation, forcing on-again, off-again negotiations that at times have imperiled the case altogether. In the past week, the agency explored new ways to break the stalemate, including a reduction of the penalty that Computer Sciences would have to pay, according to lawyers briefed on the matter.

The S.E.C., which already backed down from demands that the company admit wrongdoing, has proposed imposing a penalty of about $100 million against Computer Sciences, a large technology company that holds contracts with governments around the world. That sum falls far short of the $190 million that the company had already agreed to pay when it struck a tentative settlement with the S.E.C. last year, the lawyers briefed on the matter said.

Even so, the S.E.C. discussed whether to penalize a former controller of the company, whom the agency had not originally planned to charge. The S.E.C. is weighing whether to bring a complaint against that executive, as well as the company's former chief executive and chief financial officer, according to the lawyers. The S.E.C. could announce the case as soon as the coming week, though the discussions could fall apart, as they have before.

The dizzying series of about-faces -- at times changing faster than one can say "percentage-of-completion accounting," the source of the misconduct -- emanated from the S.E.C.'s commissioners, a majority of whom must approve the settlement for it to become official. That has proved elusive as the case has pitted the commission's two Democrats, champions of strict enforcement cases, against two Republicans who are loath to levy big corporate fines, reflecting how party line divisions complicate the agency's effort to punish misconduct.

Mary Jo White, the agency's chairwoman and a political independent, would typically break an impasse like this, casting the deciding vote or swaying a reluctant commissioner. But for Ms. White, a former United States attorney known for promoting corporate punishments, the Computer Sciences case was off limits. Under federal ethics rules, she had to step aside because her husband, John White, a partner at the law firm Cravath, Swaine & Moore, represented Computer Sciences in the S.E.C. case. Because Cravath's involvement neutralized Ms. White, it has arguably opened the door for the company to obtain a smaller penalty.

The story behind this case and the last-ditch effort to save it - - an account based on interviews with the people briefed on the matter -- offers a look behind the curtain of a Wall Street regulator's secret negotiations. The process is both hectic and slow, the interviews show, so much so that the S.E.C. missed a legal deadline to file a portion of the Computer Sciences case last week, a rare misstep.

In recent days, the S.E.C. moved closer to a deal, the interviews show, discussing the contours of a settlement that would offer something to everyone: To help sway the Democrats, Luis A. Aguilar and Kara M. Stein, the S.E.C.'s enforcement division discussed charging the former controller. Hoping to appease Michael S. Piwowar and Daniel M. …

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