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As head of the U.S. Securities and Exchange Commission’s enforcement division for the past three years, Richard H. Walker was the top watchdog for the regulator, leading aggressive assaults on violations of securities laws and regulations. In July, Walker, 50, announced he was resigning to return to the private sector, but he intends to remain for a few weeks to help securities attorney Harvey L. Pitt make the transition to SEC chairman. Walker said he’s still considering his options, but he intends to return to New York. Before joining the SEC in 1991, Walker was a partner at Cadwalader, Wickersham & Taft in New York. After reading a news report that the head of the SEC’s New York office was leaving, Walker applied for the position and was appointed by then-Chairman Richard C. Breeden in 1991. He relocated to Washington to serve as the SEC’s general counsel from 1996 to 1998, when he was named director of the enforcement division by former Chairman Arthur Levitt. He is a graduate of Trinity College and Temple University Law School. As enforcement head, Walker led the SEC’s attack against earnings management and other financial reporting abuses and advanced the regulator’s efforts to secure more criminal prosecutions. During his tenure, Walker snared major companies such as W.R. Grace & Co., Cendant Corp., Sunbeam Corp., Waste Management, drug wholesaler McKesson HBOC Inc., Livent and Microstrategy Inc. in the SEC’s efforts to nail companies which cooked the books. The SEC snagged companies who engaged in accounting machinations such as cookie-jar reserve schemes, where companies would put excess earnings in a cookie jar reserve and when profits needed a boost would begin funneling the reserve into earnings. W.R. Grace and Cendant were both investigated for their use of cookie-jar reserves, while Sunbeam and McKesson appeared to have recorded the sale of goods of which they still retained ownership. At Livent, the company presented itself as a financially sound entity when it wasn’t. The now defunct company’s chief executive, Garth Drabinsky, was indicted for his involvement in the accounting scandal. Recently, Walker sat down with Daily Deal reporter Shanon D. Murray in his office at SEC headquarters in Washington to talk about his stint as enforcement chief. The Daily Deal: New SEC Chairman Harvey Pitt has promised a “real-time” enforcement initiative, which is designed to shorten the time lag between an infraction and the SEC’s punitive response. Sometimes the delay can take years. Why does it exist? Richard H. Walker: It is always our goal to bring enforcement cases as quickly as possible. In the past few years, we have been reducing the length of time required to complete investigations, allowing us to bring cases more quickly today than even last year. We bear an important responsibility in bringing enforcement actions. In order to bring an enforcement action, we must obtain sound evidence and facts. That requires investigative work. Also, investigations are resource driven. We live in a world of limited resources. The more resources that are available, the more investigations we can do and the faster we can do them. As far as accounting investigations go, they usually involve historical violations. We often don’t learn about accounting issues until years after the fact. Also it is very difficult to detect fraud on the face of a financial statement. In many instances we discover wrongdoing when a company announces that it has discovered some financial “irregularity” and is undertaking an internal investigation. DD: Has the SEC’s crackdown on financial reporting and accounting fraud been successful? Do you think companies have gotten the point, or will it continue to be a problem? Walker: Financial reporting and accounting fraud have been the centerpiece of the commission’s agenda, and companies have taken notice. The quality of accurate financial reporting is the cornerstone of our financial markets. If financial reports lose their credibility, then our markets will suffer. We are alarmed at what we see as an increase in financial reporting failures that have caused terrible losses to investors. We have brought some very important cases involving some very, very large companies, including W.R. Grace & Co., Cendant, Sunbeam, Waste Management and McKesson. I would say our efforts have been highly successful. People understand that this is an area where we pay a lot of attention. As a result, audit committees are functioning a lot better and the accounting profession knows we mean business. DD: Pitt also mentioned he wanted to rid the SEC of its adversarial reputation. Hasn’t the enforcement division earned that reputation for the regulator? Walker: The enforcement process is naturally an adversarial process. We conduct investigations, and we bring cases. However, there are ample safeguards to ensure fairness in the process. Suspected securities law violators have the opportunity to be heard and to present their views in a submission at the conclusion of an investigation. The staff and the commission read these submissions very carefully and often change their thinking about recommended actions. DD: What are the biggest challenges facing your successor? Walker: That would be leveraging resources to the maximum extent possible. It is always necessary to re-evaluate priorities and assign resources to the most important challenges. But it is also important to maintain broad coverage over broad markets, while at the same time, placing greater resources in priority areas. Copyright (c)2001 TDD, LLC. All rights reserved.

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