Securities and Exchange Commission Historical Society

The Enforcement Division: A History

Enforcement's "Golden Age," 1972 - 1981

Watergate and the "Voluntary Program"

Maurice Stans & G. Bradford Cook
Maurice Stans & G. Bradford Cook

The Enforcement Division gained national prominence thanks to the Watergate scandal. At first the scandal tarred the SEC; in late 1972 Casey was revealed to have transferred files of an SEC investigation to the Department of Justice, to prevent Congress from scrutinizing them for evidence of illegal campaign contributions, and a few months later his successor as chair, Bradford Cook, abruptly resigned after giving misleading testimony to Congress about the SEC’s injunctive action against Robert Vesco.(1) The scandals did not however touch the Enforcement Division – no one questioned Pollack’s or Sporkin’s integrity – and would eventually redound to the Commission’s benefit. After Cook’s resignation the Nixon administration, under heavy political pressure, moved to restore the SEC’s image by naming several highly regarded securities lawyers as Commissioners, beginning with Ray Garrett as chair in mid-1973. At Garrett’s behest, Irving Pollack was named to the commission at the end of the year, and Sporkin was promoted to replace him as division director.(2)

Stanley Sporkin
Stanley Sporkin, 2001

Watergate led to the “voluntary program” that became the defining event of Sporkin’s tenure. In this program, hundreds of firms self-reported illegal campaign contributions and foreign bribes. The program – the first of many “programs” in which Division resources were targeted at a pressing problem – not only put the Enforcement Division on the national stage, it also displayed Sporkin’s and the staff’s legal creativity in interpreting the securities laws to reach new kinds of wrongdoing.

Its origins lay in Congress’s 1973 hearings over the Watergate scandal and the parallel investigation run by Special Prosecutor Archibald Cox. These revealed that many corporations had made illegal political contributions, which drew Sporkin’s attention.(3) As he later recalled it, listening to the hearings he "would hear the heads of these companies testify. . . . I knew that corporations couldn’t give money to political campaigns . . . what occurred to me was, ‘how do you book a bribe?’.”(4) In a clever legal move –  though not perhaps a surprising one for an accountant-turned-enforcement lawyer – Sporkin had recast an issue of corporate corruption as one of securities laws disclosure. Had “shareholders, the various boards of directors, or the outside directors [been] informed of this use of corporate assets”?(5) The Division opened a series of informal inquiries that uncovered many issuers with disguised or off-the-books slush funds, discoveries of which led to more formal investigations. The Division of Corporate Finance soon issued a release stating that not only was the conviction of a corporation or officers or directors for making an illegal payment material, meaning it needed to be publicly disclosed, but that even illegal campaign contributions that had not yet become the subject of a formal proceeding might need to be reported.(6)

It was an aggressive reading of “materiality,” justified by the argument that illegal payments, even if a trivial part of the corporation’s overall income, reflected on the “integrity and management of the corporation” and so should be disclosed to shareholders. The belief that such payments had to be accurately recorded, and perhaps reported, provided the Enforcement Division a jurisdictional hook for its investigations. Within two years fourteen firms making illegal campaign contributions had settled with the Commission, including Gulf Oil, 3M, and Lockheed; the first complaint was against American Shipbuilding, which also snared its famous CEO, George Steinbrenner.(7)


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Footnotes:

(1) Seligman: 446-47; Bradford Cook oral history: 26-27.

(2) Seligman: 449.

(3) Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments and Practices Submitted to the Senate Banking Housing and Urban Affairs Committee, May 12, 1976: 2.

(4) Thomas Gorman, The Origins of the FCPA, 43 Sec. Reg. L.J. 43, 44 (2015).

(5) Hawke: 24.

(6) Division of Corporate Finance’s Views and Comments on Disclosures Relating to the Making of Illegal Campaign Contributions by Public Companies and/or their Officers and Directors, SEC Rel. No. 33-5466 (Mar. 8, 1974).

(7) Report on Questionable and Illegal Corporate Payments and Practices.

Related Museum Resources

Papers

January 31, 1974
transcript pdf (Courtesy of National Archives and Records Administration)
January 3, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
March 19, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
April 26, 1975
document pdf (Government Records)
May 15, 1975
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 4, 1975
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
August 11, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
September 24, 1975
transcript pdf (Elliott Richardson Papers, courtesy Library of Congress)
November 1975
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
March 12, 1976
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
May 12, 1976
image pdf (Reproduced with permission from Securities Regulation and Law Report, Number 353 May 19, 1976, Special Supplement, p. 1-45. Copyright 1975 by The Bureau of National Affairs, Inc. 800-372-1033; http://www.bna.com)
May 21, 1976
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 16, 1976
transcript pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
June 17, 1976
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
September 16, 1976
image pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
September 21, 1976
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 8, 1976
image pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
January 7, 1977
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 10, 1977
image pdf (Courtesy of the National Archives and Records Administration)
May 7, 1977
transcript pdf (Courtesy of Theodore Levine)
May 13, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
December 19, 1977
image pdf (Courtesy of the National Archives and Records Administration)

Photos

June 2, 2004
April 15, 2010

Paul Berger, Jeffrey Manns and Stanley Sporkin

April 15, 2010
April 3, 2018

Roundtable of Current and Former SEC Enforcement Directors

Oral Histories

08 May 2007

G. Bradford Cook

Programs

15 April 2010

Fireside Chat - Foreign Corrupt Practices Act

Moderator: Jeffrey Manns

Presenter(s): Paul Berger, Stanley Sporkin

Made possible through the support of Debevoise and Plimpton LLP

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