SEC seeks to seize homes
March 4, 2003
Securities cops want Congress to waive state property protections
By Marcie Geffner
Inman News Freatures
The Securities Exchange Commission wants Congress to put a stop to corporate criminals' use of state property rights laws to shield million-dollar homes from being seized and sold by the government.
That idea was floated Wednesday by Stephen M. Cutler, director of the SEC's enforcement division in his testimony before a subcommittee of the House Committee on Financial Services. Cutler's testimony recapped the SEC's efforts to improve its enforcement and collection efforts and hand over more money to investors who have been defrauded by management.
Specifically, Cutler asked Congress to amend federal law to preempt state homestead exemptions and other property rights protections to facilitate the SEC's seizure of primary residences.
Every state in the nation has some statutes that protect certain property from collections and "the SEC still encounters cases where securities law violators can rely on state law homestead exemptions and other protections to shield their assets from collection," he said.
In some instances defendants have been able to shelter millions of dollars of allegedly ill-gotten gains by buying a luxury primary residence and claiming the state homestead exemption.
Cutler said state laws leave the SEC no choice other than protracted litigation to obtain the shielded assets.
"By excluding SEC securities fraud judgments from state law property exemptions, Congress can increase the deterrent value of SEC enforcement actions against wrongdoers, and also make more assets available for recovery by the SEC and return to investors," he testified.
Congress already gave the SEC "new weapons" for its "enforcement arsenal," Cutler stated, in the Sarbanes-Oxley Act of 2002, which revamped accounting oversight and corporate governance laws. The new weapons include lower standards for the SEC to obtain certain federal court orders and administrative proceedings against officers and directors, the ability to freeze certain extraordinary payments before an enforcement action is brought, better access to foreign audit work papers and the authority to seek penny stock bars in federal court.
The SEC also wants the power to hire private collection attorneys and obtain grand jury information from the Justice Department, among other items.
Copyright: Inman News Service