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SEC Targets Recidivists in Over-the-Counter Markets (Update1)

By David Scheer
http://wealth.bloomberg.com/apps/news?pid=20601203&;sid=alPi86Bdl_ZM&refer=insurance

Jan. 26 (Bloomberg) -- The U.S. Securities and Exchange Commission will boost scrutiny of over-the-counter market frauds to identify and pursue repeat offenders who facilitate misconduct, the agency's enforcement chief said.

The agency will target even supporting players whose names are linked to multiple infractions in such cases, including lawyers, brokers, penny-stock promoters and shell-company sellers, Linda Thomsen, the highest-ranking U.S. securities enforcer, said in an interview yesterday.

``If you go after the other players, you have more effect,'' potentially upsetting a variety of scams, she said. ``There are international implications.''

SEC Chairman Christopher Cox last year pledged to boost efforts to thwart frauds aimed at retail investors as the increasing concentration of wealth among older Americans threatens to trigger an ``avalanche'' of cases. Those investors are often the targets of fraudulent securities sales, penny stock manipulation and so-called Ponzi schemes.

The SEC review may cast a spotlight on people whose names were linked repeatedly to past lawsuits, or highlight recidivists in current ones, said Thomsen. The agency usually seeks higher penalties against those who repeat misconduct.

Strategy Shift

Pursuing outside lawyers in over-the-counter cases would mark a shift for the agency, which more frequently goes after companies' in-house counsel.

Comverse Technology Inc.'s former legal chief, William Sorin, this month agreed to pay $3.1 million to settle SEC accusations he played a critical role in backdating stock options. He is among at least 10 general counsels who have quit or been fired during similar SEC probes.

``It's an intriguing area to look and may well prove to be fertile,'' said Jim Cox, a Duke University law professor specializing in securities fraud.

Some professionals are thought to be more lenient in their dealings, serving ``as a path of least resistance, or a weak link in the network protecting investors,'' Cox said.

The SEC will step up cooperation with criminal prosecutors to pursue recidivists and plans to develop computer methods to identify people with multiple violations, Thomsen added in a speech today in Coronado, California.

``We may have a case in L.A., a case in Fort Worth, a case in Chicago, that are on their surface unrelated,'' she said. ``We will try to focus on actors in common.''

Over-the-counter markets trade stocks, bonds, futures and derivates that are not listed on one of the major exchanges. A Ponzi scheme is a strategy in which people are promised returns on an investment, with the money taken from new investors used to pay off earlier investors.

To contact the reporter on this story: David Scheer in Washington at [e-mail] .
Last Updated: January 26, 2007 12:21 EST

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