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Few people wielded more power in WorldCom Inc.’s recent rehabilitation than Richard Breeden, the court-appointed corporate monitor. Though Breeden was the first ever to hold the post-created at the request of the Securities and Exchange Commission-he won’t be the last. The SEC and federal prosecutors have asked judges to appoint monitors at a growing number of companies plagued with executive fraud. While the duties of these overseers are still being defined, they’ve generally been charged with fact-finding and asset protection. Most of the post-WorldCom monitors have been been assigned to small, little-known companies. But this summer the U.S. Attorney’s Office in Brooklyn, N.Y., asked for a monitor at Symbol Technologies Inc., a Holtsville, N.Y.-based company that makes bar code scanning devices. In June, prosecutors indicted eight former Symbol executives, including ex-General Counsel Leonard Goldner, on various fraud charges. The SEC also threatened to unleash Breeden as a monitor at Hollinger International this spring if its then chairman thwarted a special committee’s investigation at the Chicago-based newspaper group. Peter Bresnan, associate director of the SEC’s enforcement division, said that a monitor isn’t appropriate in every instance of corporate fraud. But he said that the government will continue to consider it “in unusual circumstances where management has demonstrated it can’t be trusted to act in the best interests of the investors.” A ‘less drastic’ approach Courts have long appointed a range of officials-trustees, examiners, investigators, receivers, special masters-to help sort out facts and handle finances when a company runs into trouble. According to Bresnan, a monitor is a “less drastic” approach than a receiver, and is charged with saving a company rather than liquidating it. The SEC and the U.S. Department of Justice usually ask for monitors in cases where they are already pursuing civil or criminal charges against a business. The federal judge hearing the government’s case has sole discretion over whether to appoint a monitor, whom to choose and what that person’s duties will be. The monitor’s duties can range from protecting assets and records, to assisting government investigators, to reassuring financiers and customers about the company’s stability. Bresnan won’t say how the SEC developed the concept of the corporate monitor. But the agency was clearly influenced by the Enron Corp. scandal. Prior to filing for bankruptcy in December 2001, Enron executives shredded documents and took huge bonuses. When WorldCom announced seven months later that it had overstated past earnings in the biggest accounting fraud in American history, the SEC was determined to get involved sooner and in a more substantive way. “On day one [June 26, 2002], we filed the lawsuit against WorldCom, and on day two, we forged an agreement for a corporate monitor,” Bresnan said. He added, “We wanted to react to some of our experiences in Enron. We wanted to make sure there was no document destruction in WorldCom and no excessive compensation paid to executives at the time.” In seeking a monitor, the SEC suggested three names to U.S. District Judge Jed Rakoff in Manhattan, who was hearing the agency’s civil complaint against WorldCom. The candidates had been preapproved by the SEC and WorldCom, which had agreed to pay the monitor’s $800-an-hour fee. Rakoff chose Breeden, a former SEC chairman who now runs a private consulting business in Connecticut. Rakoff initially charged Breeden with preventing document destruction and last-minute compensation grabs-the SEC’s chief concerns. But Breeden said that as he came to understand what was needed to stabilize the company, his duties expanded. He approved all major financial decisions at WorldCom, and met with the company’s bankers and creditors. The idea spreads Breeden’s success at WorldCom has led the government to ask for corporate monitors in other federal criminal and civil cases. At the SEC’s request, a Washington federal judge appointed Gregory Bruch in March 2003 to oversee U.S. Technologies Inc. Based in D.C., the company ran outsourcing programs for prison labor, and invested in small Internet businesses. In April 2004, former chief executive C. Gregory Earls was convicted on 22 counts of criminal fraud. Like Breeden, Bruch has SEC experience-he’s a former assistant director of the agency’s enforcement division. Bruch, now a partner at Foley & Lardner, and U.S. Technologies did not respond to requests for comment. But an SEC background isn’t required to become a monitor. In March 2004, a Manhattan federal judge named the New York firm of Getnick & Getnick to serve as the monitor for the New York Racing Association (NYRA). Managing partner Neil Getnick said that his firm has previous experience serving as one of four “integrity monitors” hired by various federal agencies to oversee post-9/11 recovery and cleanup operations at the World Trade Center. NYRA, which oversees horse racing and betting in the state, and several former employees were indicted in late 2003 by Manhattan federal prosecutors in a tax scam. NYRA General Counsel Patrick Kehoe declined to comment. A monitor doesn’t even have to be a lawyer. This April, a Fort Lauderdale, Fla., federal judge removed the CEO of Spear & Jackson Inc. and appointed local accountant Soneet Kapila as the company’s monitor. Kapila notes that he has previously served as a court-appointed bankruptcy trustee. Spear & Jackson, headquartered in Boca Raton, Fla., is the U.S. subsidiary of a U.K.-based maker of household tools. The SEC claims that the company falsely reported various stock transactions, as well as the amount of stock owned by its former CEO. Spear & Jackson did not respond to requests for comment. Not surprisingly, some white-collar criminal defense lawyers argue that monitors have potential problems. Baker Botts partner Jay Alexander said employees may feel pressured to cooperate with any investigation endorsed by the monitor in order to keep their jobs. But the fact that the monitor is acting on behalf of the government “raises an interesting question” about whether the employee still enjoys his Fifth Amendment right against self-incrimination, Alexander noted. And O’Melveny & Myers partner James Asperger thinks that appointing a monitor should depend on the level and extent of alleged misconduct at a company. Asperger believes that in cases involving only “rogue employees,” a monitor would be “overkill.”

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