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If you believe David Nelson, who in August became the regional director of the U.S. Securities and Exchange Commission after taking over from Randy Fons, financial crooks in South Florida soon won’t have much to laugh about. Among his top enforcement priorities: create closer cooperation with the U.S. attorney’s office to put more financial crooks behind bars and crack down on municipal bond neglect and fraud. He’s got the resum� to back it up. As a young SEC lawyer from 1986 to 1990, Nelson was on loan to the U.S. attorney’s office in Washington to prosecute Ivan Boesky. From 1993 to 1995, he assisted the U.S. attorney in Fort Lauderdale to bring down Nasdaq-traded College Bound Inc.; and after 1997, he was deputy director of the southeast office during the accounting fraud investigations against corporate heavyweights PricewaterhouseCoopers and W.R. Grace Co. An SEC employee since 1984, he joined the Miami office in 1992 when his wife, Alena, got a job offer to teach law at Nova Southeastern University. Now, Nelson, 43, lives in Davie, Fla., with his wife and sons, Scott, 9, and Matthew, 5. The Review‘s Johannes Werner recently spoke with Nelson at his offices on Miami’s Brickell Avenue. Q: Most federal agencies have their Southeast offices in Atlanta. Why did the SEC choose Miami? A: Until recently, the regional office was in Atlanta. In 1994, there was a readjustment of the regional alignment that made Miami the regional office, and Atlanta is now a district office within our region. That was a decision by the chairman of the SEC, and it was in response to a perception that there is a significant problem with financial fraud down in South Florida. Q: How did that perception — of South Florida being a hotbed for financial fraud — come about? There is a lot of securities fraud in South Florida. There are a lot of problems up and down the fabled Gold Coast with brokerage houses. This seemed to be a hotbed for unregistered offerings, boiler rooms and that kind of activity. The conclusion was reached that a disproportionate amount of the securities fraud that goes on in the eight-state region is concentrated in south Florida, on the east coast and west coast of Florida. Q: What’s your theory about this? A: Tongue-in-cheek: Crooks love the nice weather. The relative incidence of securities fraud in south Florida is about the same as in New Hampshire, but my anecdotal observation is that it’s much higher in south Florida. More to the point, there’s a great victim pool here — retirees. You have middle-class people who were working on a relatively modest budget their entire life, but then moved down to Florida, cashed out and now have access to a large retirement bonus. Q: We’re observing a growing number of foreigners here falling victim to securities fraud. Do you see that as well? A: We have a couple of cases in the office right now that would fit that description, and we make an effort to pursue those. We won’t decline to do a case if somebody breaks the law in the U.S. just because all the victims are out of the country. Q: Did the resignation of Randy Fons, your predecessor, come as a surprise? A: Somewhat, because it was a relatively short tenure. But he had compelling reasons why he wanted to relocate. And he didn’t leave the agency — he went to head the Denver office of the agency. Q: As the No. 2 man, were you the natural choice to succeed Fons? A: It’s a merit position, so it’s posted. I competed with candidates throughout the country, and there is certainly no entitlement as the No. 2 person to succeed the No. 1 person. Q: What were the priorities of the office under Fons; what are they under Nelson? Are there differences? A: We had a very successful run while Randy Fons was the head of this office. During his period we had accomplishments most notably in the accounting area and in the micro cap area. During that time, we brought the PWC auditor independence case. That has continued to reverberate through the accounting profession. We brought a case against W.R. Grace & Co., formerly of Boca Raton. That was one of the seminal financial accounting cases. We also did a large number of injunctive cases against micro cap promoters and people affiliated with micro cap companies. Q: Will you continue with this emphasis on accounting and micro caps? A: A portion of our program is driven by what’s out there. We are reactive to what the climate is in south Florida. So there will always be a significant presence by us in the areas of micro cap fraud, boiler room activity, unregistered offerings peddled over the telephone and the Internet. But we also make an effort to identify new problem areas. Q: Such as? A: The municipal securities area. Some of this stuff tails with what seems to be an unacceptably high level of corruption among public officials. While there is corruption in the area of political power, it doesn’t really touch on the securities laws. [But] some of the corruption in the political arena involves improper or fraudulent offering of municipal securities, or contributions to people who are making decisions about who’ll be involved in underwriting municipal offerings. Q: What could the SEC add to existing enforcement? A: The weapons in our arsenal are essentially the traditional anti-fraud provisions. If there’s an offering by a municipality down here in which we feel that disclosure was inaccurate or inadequate, we can bring a case. That is akin to the traditional financial accounting cases. But we can also bring cases for violations of the Municipal Securities Rulemaking Board rules. The MSRB promulgates rules, but they don’t have their own enforcement staff. We enforce those rules. Those rules, among other things, prohibit contributions by people who operate in the municipal securities market to officials that stand to make decisions about who gets municipal business. That’s an area in which we’re very interested. Q: Are you working on specific cases? A: We brought a case already in Broward County involving First Union [Bank] in which we realized that there were inadequate disclosures about the use of certain professionals to assist in lobbying efforts. That’s a prohibition of the MSRB rules. Q: Are you focusing on specific cities or counties? A: We’re an equal opportunity regulator and prosecutor. There’s no specific municipal entity that we’re looking at. Q: In the wake of the Internet boom, there are quite a few micro cap companies that don’t look particularly legitimate. Is that an area of concern? A: Absolutely. Our staff has grown considerably. We were allocated a lot of additional funding to hire new staff. One of the things we did, we designated one of the six enforcement branches [in Miami] specifically to look at Internet-related issues. Q: What issues? A: The Internet is taking over the telephone boiler rooms, in terms of the traditional pump-and-dumps. What you see on the Internet often is an effort through unsolicited e-mails and Web sites that present themselves as investment advisory, trying to generate enthusiasm for a particular stock. One of our priorities is to upgrade our efforts to educate the public by appearing on panels and seminars, by doing what we can to urge people to use a tremendous amount of caution when they make investment decisions based on the Internet. Q: You’re not the FBI. How do you deal with outright criminals? A: One of the things we plan to pursue aggressively is to make an effort to refer appropriate cases over to the U.S. attorney’s office for criminal prosecution. A lot of what we do can be addressed in an administrative or a civil forum, but a lot at the more egregious end of what we do is out-and-out criminal conduct. It will be our effort to provide the support to the Justice Department and the U.S. attorney’s office here in south Florida to follow up our investigations and enforcement cases with criminal actions. An injunction and some amount of civil fine doesn’t provide the deterrent they need. These are the ones that really make a difference to people who act completely outside the regulatory scheme. Q: Are you happy with staffing levels? A: We’re not a large agency. On the enforcement side we’re in the neighborhood of 30-some. That’s up from a low- to mid-20s. Between the Miami and Atlanta offices, we bring somewhere between 55 and 65 cases each year. That’s why education is such an important part of what we plan to do. Prevention is crucial. There’s only so much we can do, in terms of cases. The intake we get — in terms of leads and potential cases, customer complaints — exceeds our capacity. Q: Is that why you want to transfer more cases to the U.S. attorney’s office? A: For the overload of intake that we get, we make sure that everything that looks like a case is addressed. Everything we can’t do, we’ll refer out to the state of Florida, which also has the capacity to investigate and prosecute securities fraud. Or, when it’s brokerage-related, we send it out to the National Association of Securities Dealers. With respect to the criminal authorities, our interest is on either doing fast-breaking cases jointly with them, or to file our case civilly and refer over to them the fruits of our labor for an accompanying criminal case. Q: Which cases do you feel strongest about? A: Some of the cases we brought in the financial area and the accounting area — W.R. Grace and PWC — have a significance above and beyond the case itself. Those feel very rewarding. As the cases unfolded, they led to a lot more fallout within the accounting profession. Q: How do you deal with the pressure? A: The general scenario, when we get our hands on the tail of the tiger, is that in litigation, when the stakes are high, the other side generally greatly out-resources us. They’ll hire some of the best lawyers, some of the best firms available. They can out-man us. They can’t out-think us, they can’t out-energize us. We have staff here that’s very professional, that’s very committed, and that provides a lot of sustenance, even if the salaries aren’t as high. But the reality in a big case is that they’re going to have associates and partners and paralegals, and we will have a team of two, three, maybe four, tops. Q: So, how about those long hours? A: When a case is time-sensitive, people here are professional. They’ll work to get the job done. There are some cases that aren’t as notable �� unregistered offerings or micro cap fraud �� that can require more concentrated late nights than a Grace case. Q: How do you find qualified people? A: I don’t know. It’s a job that appeals to a certain kind of people. There’s a gentleman down the hall here who’s been doing this work for 17 years. It’s more energizing, it’s more interesting, more rewarding than slaving away at a law firm.

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