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SEC Enforcement Chief Plans to Leave Position

Cutler Praised as Effective Watchdog

By Carrie Johnson
Washington Post Staff Writer
Friday, April 15, 2005; Page E02

The top enforcement official at the Securities and Exchange Commission said yesterday that he would resign after four tumultuous years investigating fraud at the nation's biggest companies and Wall Street investment banks.

Stephen M. Cutler, 43, said he would leave the agency in mid-May to return to the private sector. For ethical reasons, Cutler said, he has not yet entertained job offers from law firms or companies, many of which are likely to compete for his expertise, recruiters said.

Stephen M. Cutler will leave after four years at the SEC . (File Photo)

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Cutler took over as enforcement chief at the SEC in October 2001, two months before Houston energy trader Enron Corp. collapsed in the first of a series of accounting scandals that badly damaged investor confidence.

Cutler's enforcement unit grew from 900 to 1,200 employees and filed civil fraud charges against the former leaders of Enron, WorldCom Inc., and Tyco International Ltd. The enforcement unit took particular interest in holding accountable bankers, lawyers and accountants who helped others commit fraud.

"My hope is that everything we've done in one way, shape or form has helped establish or reestablish a culture of compliance, not only on Wall Street but on Main Street as well," Cutler said in a telephone interview. "The last four years have been an incredible time in the capital markets. It's mind-boggling."

Former SEC officials and historians said Cutler's aggressive and evenhanded response to the crisis marked him as one of the two most effective watchdogs to have led the agency's enforcement unit since the Great Depression.

"It was a confluence of someone with his intelligence and integrity coming at the critical time we're now facing in the corporate community," said Stanley Sporkin, a former federal judge who was the SEC enforcement chief in the 1970s. He is considered to be the other particularly effective watchdog.

SEC Chairman William H. Donaldson said of Cutler yesterday: "He is what every prosecutor should be: tough but fair."

But Cutler's approach incited fiery rhetoric in the corporate community and sometimes within the SEC itself. The U.S. Chamber of Commerce repeatedly has criticized the agency for overreaching in enforcement cases. Two of the SEC's Republican commissioners, Paul S. Atkins and Cynthia A. Glassman, declared their aversion to imposing big fines on corporations accused of wrongdoing, lest shareholders ultimately pay the price.

So far, Donaldson has generally backed Cutler and voted with two Democratic commissioners to approve large penalties. Of the dozen biggest monetary penalties ever imposed by the SEC, 10 came on Cutler's watch.

The SEC also was criticized by New York Attorney General Eliot L. Spitzer for being slow to crack down on tainted research reports filed by Wall Street analysts and trading abuses in the mutual fund industry. Spitzer said yesterday that Cutler had become a "friend and ally," and he praised Cutler for making the agency more proactive.

Cutler, a former partner at the Washington law firm now called Wilmer Cutler Pickering Hale and Dorr LLP, said he looks forward to spending more time with his wife and two sons, ages 3 and 8.

The SEC has not selected a replacement for Cutler, and an agency spokesman said there is no schedule for a decision.

Cutler's longtime deputy, Linda Chatman Thomsen, commands widespread respect within the SEC and could be a leading candidate, according to several agency staffers who spoke on the condition of anonymity because the process is in its early stages. Thomsen oversees the SEC's long-running Enron investigation.

Joel Seligman, dean of the Washington University School of Law and author of a history of the SEC, said that promoting Thomsen would send an important signal about "continuity" -- namely, that agency leaders will not bend to industry pressure to pull back on enforcement efforts.

"I think there are ample reasons to be concerned about rollback at the SEC," Seligman said.

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