Disclaimer

2. Disclaimer The SEC as a matter of policy disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this presentation are those of Joan E. McKown and are not necessarily shared by the Commission or its staff.

3. Today’s Topics • Overview of Commission Actions –FY 2004 • New Initiatives • Criminal Cases

4. Annual Caseload by Fiscal Year Between 450 and 650 new cases each year

5. FY 2004 Statistics • 639 Total Cases • Largest categories • Financial fraud and issuer reporting ( 28%) • Broker-Dealer (22%) • Offering fraud (15%) • Investment Adviser/IC/Transfer Agents (15%) • Insider Trading (7%) • Market Manipulation (6%) • Fair Funds – over $4 billion

6. Financial Reporting and Issuer Disclosure Actions • FY 2004---- 179 cases • FY 2003-----199 cases • FY 2002-----163 cases • FY 2001-----112 cases • FY 2000-----103 cases • FY 1999-------94 cases

7. Significant Cases • Qwest- $250 million penalty • Computer Associates - $225 million in restitution to shareholders and settlement with criminal authorities • Royal Dutch Shell- $120 million penalty • Bristol-Myers Squibb - $100 million penalty • Symbol- $37 million penalty

8. Disclosure to Shareholders Executive Compensation and Self-Dealing Cases • GE- executive compensation not disclosed • Disney- failed to disclose employment and compensation of director’s family and payment to corporation owned by director • TV Azteca- failed to disclose 3rd party transactions benefited COB

9. Disclosure to Shareholders (cont) Numbers Right but Disclosure Incomplete • Warnaco- Numbers OK in restatement, but failed to disclose real reason for restatement • Hollinger- Numbers OK in 10-K but failed to disclose unauthorized transfer of assets to insiders

10. Third Party Responsibility • Royal Ahold- employees and agents of vendorsheld liable for aiding and abetting massive fraud by signing and returning materially false audit confirmations sent to them by the auditors of U.S. Foodservice (sub of Royal Ahold) • AIG- sold an earnings management product and held liable for misstatements in customer’s financial disclosures (PNC)

11. NEW INITIATIVES • Tone at the Top • Gatekeepers • Corporate Governance • Cooperation

12. Tone at the Top Violations of securities laws are frequently the product of : • Individual failings and • Deficient corporate culture

13. Creating Good Tone at the Top • Make ethics part of company DNA- day to day lives of employees • Senior management’s conduct should reflect company’s ethical standards– no double talk • Don’t tolerate compliance risks for short term profitability • Employees should be able to safely voice ethical concerns • Be ready to handle problems openly and honestly • Punish those who violate ethical standards- let other employees know why they were punished • Make sure Board is involved

14. Personal Responsibility

15. Recent Actions against Corporate Officers and Directors • Enron – Kenneth Lay, Jeff Skilling and Andy Fastow • WorldCom – Bernard Ebbers and Scott Sullivan • HealthSouth- Richard Scrushy • Tyco – Dennis Kozlowski • Hollinger- Conrad Black and David Radler • Adelphia – the Rigas family • Schering-Plough – Richard Kogan • Gemstar/TV Guide – Henry Yuen and Elsie Leung • Computer Associates – Sanjay Kumar • Warnaco- Linda Wachner • Symbol Technologies – Tomo Razmilovic • Vivendi- Jean-Marie Messier • Xerox – Paul Allaire, Richard Thoman, Barry Romeril

16. Focus on Gatekeepers First Line of Defense • Auditors • Lawyers • Board of Directors

17. Auditors • Grant Thornton- $1.5 million penalty for misconduct in connection with audit of MCA Financial Corp. • PricewaterhouseCoopers- $2.4 million penalty for aiding and abetting the reporting violations of Warnaco • Ernst & Young- $2.1 million in disgorgement and PI in connection with audit of PeopleSoft

18. Attorneys • Recently, the Commission has increased is scrutiny of the role of lawyers in corporate frauds • In past 2 years, Commission has named lawyers as respondents or defendants in more than 30 of our enforcement actions

19. David Drummond - Google Settled C&D • Drummond charged with causing Google’s Section 5 violation • Google issued over $80 million worth of stock options to employees during a 12 month period • Securities laws require companies issuing over $5 million in options during 12 month period to provide detailed financial information to recipients or to register options and make disclosures to public • Drummond advised Google’s Board that it could continue to issue options due to an exemption to the law, but failed to inform the Board that the registration and disclosure obligations had been triggered or that there were risks in relying on the exemption • “Attorneys who undertake action on behalf of their company are no less accountable than any other corporate officer.”

20. Board of Directors • Look hard at the responsibility of the company’s independent directors • Continue to focus closely in our investigations on whether outside directors have lived up to their role as guardians of the shareholders they serve

21. Corporate Governance • Post investigation, Commission takes a look at the shape of company • Lingering issues are handled by settlements that include corporate governance enhancements

22. Corporate Governance Enhancements • Qwest - Financial fraud • $250 million penalty • Chief Compliance Officer who reports directly to new compliance committee of Board of Directors • CCO shall respond to employee’s concerns regarding matters of ethics or questionable business practices

23. Corporate Governance Enhancements (cont.) • Charter • Specific undertakings regarding the reporting of subscriber numbers to deal with the fraud of the case • Establish web site and Toll Free number managed by independent 3rd party for employees to contact

24. Cooperation

25. What Does Cooperation Mean? • 21(a) Report: • Self-policing • Self-reporting • Remediation • Cooperation • Effort to influence conduct

26. Rewarding Good Behavior • At the same time the Commission is seeking penalties to effect changes in corporate culture – they are also seeking to reward companies that can demonstrate that they had or have made significant efforts to achieve a culture of compliance • Recently the Commission brought 11 cases in which we publicly recognized cooperation and remedial acts • No penalties were sought in these cases

27. Conseco Corrpro Charter VantageMed Corp. Senetek Gateway Royal Ahold Performance Food Groups Gold Banc BJ Services Hanover Compressor No Penalty Cases

28. ElectroScientic • No case against ESI because of its “swift, extensive, and extraordinary cooperation in the Commission’s investigation.” • Self –reported • Conducted a through and independent internal investigation • Shared results of investigation – including not asserting any applicable privileges and protections with respect to written materials • Terminated responsible wrongdoers • Facilitated Commission staff’s investigation overseas • Implementing remedial actions designed to prevent recurrence of fraudulent activity

29. Goals of New Initiatives • Anticipate risk • Create greater deterrence • Change corporate culture and tone at the top

30. Coordination with Criminal Authorities • In FY 2004, Commission coordinated with • 41 U.S. Attorney’s Offices and 8 state prosecutors • on 159 indictments or informations for 302 individuals • verses 64 indictments or informations in 1999 • Corporate Fraud Task Force