Meanwhile, the enforcement division is equally desperate for staff. With 900 employees nationwide, it has typically had about twice the staff of corporation finance. But that’s not enough, say former insiders, based on the explosion of new investigations and the likelihood that corporate defendants will accept fewer settlements given the harsher penalties for accounting fraud. “Enforcement has 28 accountants [at the Washington, D.C., headquarters]. They could double that easily,” says Turner. Moreover, the shortage of support staff, including file clerks, means there is about 1 secretary per 10 attorneys, says Bruch, compared with the 1-to-3 ratio at most private firms.
The 17 percent turnover among the attorneys themselves–including former general counsel David Becker–also creates a major liability for the agency. Martin Weinstein, a Foley & Lardner attorney who recently defended a former Fortune 500 CFO against the SEC, notes: “In the past year since they’ve filed the case, they’ve had five [different] lawyers handling the proceedings at different times,” including one who had joined the SEC only 10 days earlier, he says. In private practice, “if the case were passed from attorney to attorney, I think the client would refuse to pay.”
The Justice Department would be a natural poaching ground for the SEC, says Turner. But, in terms of legal muscle, parity between the agencies just doesn’t exist. “If you want to be an experienced trial lawyer, you’re still going to go to a U.S. Attorney’s office before the SEC, because you’re going to get more cases that move faster with a lot more at stake,” says Weinstein. Besides, the Justice Department will need new staff just as much as the SEC if it is to take up more of the civil charges brought against corporations. And while some have floated the idea of giving the SEC authority to bring criminal charges on its own, that power is unlikely to be ceded anytime soon. “I don’t think there’s any likelihood in the foreseeable future that the SEC will have criminal enforcement power,” says Joel Seligman, dean of the University of Washington at St. Louis Law School. Not only would Justice “be very uncomfortable” with such an arrangement, he thinks it is “better able to balance the needs for prosecution, which doesn’t always mean securities cases.”
Even if the SEC had the number and caliber of staff that it needed, observers say it would have to retool its workflow to truly be effective. To start with, the SEC needs to prioritize its enforcement cases, as the Ants Software example underscores. “The hard part is having the discipline to close the old, less-worthy investigations,” says Bruch. “It’s not that it’s not real fraud–oftentimes, it’s outrageous fraud–but I don’t think you can say anymore that microcap fraud or Internet fraud is what they should be doing.” The SEC has paid particular attention to Internet-based scams in the past five years, forming special enforcement units dedicated to the task and creating a “cyberforce” to conduct Internet surveillance that was 240 people strong at one point, according to a 2000 Government Performance and Results Act report.