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To sit across from Robert Mitchell and Helane Morrison is to sit across from true believers. “We have an important area of the country that we cover here,” said Morrison, the head of the San Francisco district office of the Securities and Exchange Commission. “We want to make sure we stay on top of what’s going on.” Sitting in an SEC conference room in the Financial District, Morrison and Mitchell, the chief of enforcement, seem reserved but intently serious about their work as the Bay Area’s — indeed, most of the northwest United States’ — top financial cops. Especially as the markets seem to collapse around them. The SEC is part regulator and part enforcer, and its budget has been small in government terms — about half the price of a B-2 bomber. But burgeoning corporate scandals have raised expectations for the agency. While criminal fraud charges remain the province of federal prosecutors, the SEC is the civil enforcer of securities laws. Prodded by an angry public, lawmakers have given it new muscle to combat fraud, nearly doubling its budget and giving it new powers to prevent directors and officers from serving with public companies. Already known as one of the better field offices, the SEC office here could be about to bloom. More money is in the pipeline. So are more lawyers. Its relationship with the U.S. attorney’s office has solidified, and its already aggressive leadership is buoyed by a public whose desire to clean up corporate America is unparalleled since the days Teddy Roosevelt was busting trusts. Both Morrison and Mitchell profess to be intensifying the office’s scrutiny of companies, brokers and investors. “I think by the end of the fiscal year, [case filings] will be up at least 33 percent over last year,” Morrison said, including administrative actions and U.S. District Court cases. The increase comes not only as a result of congressional bequeaths and public demand, but efforts on the part of the SEC to speed up its investigations. “Investigations that have taken two years previously, we’re trying to do in one year. A one-year investigation, we’ll do in six months,” Mitchell said. This newfound aggression, spurred by recent financial scandals, has been developing for some time. In 1998, former SEC Chairman Arthur Levitt Jr. gave a speech called “The Numbers Game,” in which he called modern earnings management “a game that runs counter to the very principles behind our market’s strength and success.” Levitt wanted his district offices to cozy up with the local U.S. attorneys. “Our civil remedies by themselves were not deterring the conduct,” said Morrison, who has worked in the office since 1996. “We were still seeing it, and we wanted the officers and directors to know that they faced jail time if they were going to play these games.” Around the time Levitt gave his speech, the SEC installed Valerie Caproni as head of the Pacific Regional Office, which covers much of the West. The choice of Caproni was telling — she’s a former federal prosecutor who built a name for herself bringing mob cases in Brooklyn. COLLABORATION SEC investigations involving potentially criminal activity were now to be shared with federal prosecutors. One of the offices that had already tried to do that was San Francisco. “I think [San Francisco] is one of the best offices in the SEC in a pound-for-pound sense,” Caproni said. In 1998, Robert Mueller III replaced U.S. Attorney Michael Yamaguchi. One of Mueller’s stated goals was to jail crooked executives. As someone known in the power center of Washington, D.C., Mueller was able to bring top prosecutors to San Francisco, including one to run his securities fraud division. Leslie Caldwell, like Caproni, made a name for herself prosecuting mobsters and violent gangs in Brooklyn, where the two were friends. During previous U.S. attorney regimes, said former federal prosecutor Jerrold Ladar, Morrison would deliver criminal cases to prosecutors’ desks, where they would languish. “That situation held for a long time,” Ladar said. “Helane is very aggressive, and she was sort of at her wits’ end as to what to do about it.” Morrison says her relationship with past U.S. attorney regimes was fine, but she agrees with Caproni that Mueller made prosecutors take SEC cases more seriously. Caldwell’s arrival cemented the bond. “The SEC really benefited from Leslie Caldwell, Bob Mueller, [former criminal chief] David Shapiro and those guys,” said Caproni, now counsel at Simpson Thacher & Bartlett. Caldwell has since moved on to head the Justice Department’s investigation into the collapse of Enron Corp. There are challenges in working closely with the U.S. attorney’s office. Defense lawyers who do SEC work say clients are increasingly skeptical about cooperating with the SEC, fearing that their statements might end up on the desk of a federal prosecutor. It’s a problem Morrison is willing to live with. Plea bargains negotiated by prosecutors can help SEC investigations too. “Even though more people are taking the Fifth with us, we’re involved in the proffers. Somebody is going to be the first in the door. � So it kind of balances out,” Morrison said. The close relationship between her office and the U.S. attorney is likely to continue. After a former Media Vision Technology Inc. executive was convicted on several counts of wire and securities fraud last week, new U.S. Attorney Kevin Ryan stressed that his office is dedicated to prosecuting corrupt corporate executives. And Caproni’s replacement as head of the Pacific Regional Office, Randall Lee, is himself a former federal prosecutor in Los Angeles. LIMITATIONS FOR OUTSIDERS The office has its limitations. For the most part it — like any other office –cannot be expected to catch frauds on its own, though Morrison said there are signs to look for. But financial frauds of the type that have stoked the public’s ire — WorldCom, Adelphia or Enron — are virtually impossible for outsiders to detect. “Financial fraud is often an after-the-fact instance when something has blown up — you see it there,” Mitchell said. “You need to be inside the company,” Caproni echoed. So the SEC has started looking for insiders. About 300 e-mail tips come in per day to SEC headquarters in Washington, D.C., Mitchell said. In addition, the local offices of the SEC, FBI and the U.S. attorney have jointly opened a securities fraud hot line for those with information about wrongdoing. Much talk has been made about the difficulty that the SEC has in attracting good lawyers. Observers like Caproni and those within the office say it’s not a problem here. Part of its good reputation is owed, in no small part, to its locale. Because people want to live in the Bay Area, the office has had the luxury of plucking public-service minded lawyers from some of the finest law firms in the city. On the enforcement side, for example, about 20 lawyers and three accountants are divided into four investigatory branches. Three of the branch heads are from Morrison & Foerster. Helane Morrison said recruiting good lawyers is key to the office. “It’s really important for us to have high caliber people because they are up against � some of the most senior people from the biggest firms,” Morrison said. “We need to be able to hold our own.” As with any public sector job, turnover is a problem. Morrison said a lawyer needs about three years of service before the office’s investment in him or her really pays off. But since investigations can drag on for years sometimes, it is not altogether unusual for an SEC prosecutor to leave mid-investigation, letting the case idle and leading some defense attorneys to mistakenly assume it has been dropped. “Even if they don’t hear from us for a while, it doesn’t mean we’re not investigating,” Morrison said. The office does hold its own. Although Caproni said an investigation similar to Enron would sink a district office, Morrison insists San Francisco could take it on. She points to a slew of cases, including the office’s handling of a massive alleged fraud relating to McKesson Corp.’s acquisition of a Georgia software company. The office also has the leeway to set its own course. “We have a lot of autonomy,” Mitchell said. “It’s just a question of, is it in our area? Does it make sense for us to pursue it?” Some say the office is even succeeding in the usual tug of war that district offices go through with Washington when determining who gets to file a case when it’s ready. “They don’t have to turn them over to Washington anymore,” said Wilson Sonsini Goodrich & Rosati partner Jared Kopel, a defense lawyer who, like several defense lawyers contacted, praised the office. With untold corruption going on, they can’t get everything. Morrison said the office tries to bring “message cases” to warn potential wrongdoers of the dangers they face. “We can’t know everything that’s going on out there,” Morrison said.

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