Rosalind Tyson
Title:
Acting director, Pacific regional office
Organization:
Securities and Exchange Commission
Born:
April 6, 1948
Education:
Bachelor’s degree from Georgetown University, master’s degree from University of Hawaii, Stanford Law School
Career Turning Point:
Her mother suggested she apply to the SEC in 1982
Most Admired People:
Predecessors Valerie Caproni, Elaine Cacheris, Jim Sanders, Irving Einhorn and Michael Stewart
Personal:
Married to patent lawyer Timothy T. Tyson. Two children.
Rosalind Tyson, acting regional director of the SEC, deals with some of the hottest cases in the country as she tracks financial and investment fraud
Rosalind Tyson is in the hot seat. A career Securities and Exchange Commission lawyer, Tyson was named acting regional director of the SEC’s Pacific region in August, after Valerie Caproni left to join private practice.
With new SEC Chairman Harvey Pitt expected to name a permanent director this fall, Tyson is a candidate for the post. In her role, she is undergoing a tryout of sorts in the glare of some of the biggest SEC cases.
The Pacific region, covering California and eight other Western states, is home to plenty of activity, including the case of Reed Slatkin, an unregistered money manager who is accused of misdirecting at least $230 million of investors’ funds, much of it after the SEC began investigating him in 1997. There also was the false Emulex Corp. news release last year, considered to be the largest Internet fraud to date.
Question:
How many people work in the Pacific region and what do they do?
Answer: The region has two offices. Our L.A. office has a staff of about 140. Slightly more than half are enforcement staff attorneys and accountants who conduct investigations and bring cases. About 50 people are regulatory staff. They do field inspections of broker dealers, mutual funds and money managers. The San Francisco district office has another 70 staff members divided into the same groups.
Q: What are some of the most common problems you see?
A: We see offering fraud, either a Ponzi scheme or some other kind of failure to disclose essential elements in an offering. We also see unscrupulous brokers or money managers who will cheat their clients. Another fairly common problem is the failure to disclose, or fraudulent disclosure by public companies, of what their business is and how they’re doing.
Q: How many complaints do you receive per year in the region?
A: Several thousand, from various sources. Thousands come through our Web site in Washington. Our investor complaint staff here probably gets a couple thousand. We also read the newspaper, we get anonymous tips, we get tips from civic-minded competitors, reporters, filings with our division of finance, and our broker-dealer staff.
Q: What happens when a complaint comes in?
A: Someone reviews every complaint and decides whether it bears further investigation. We may refer it to the NASD (National Association of Securities Dealers) or to a state or our own consumer affairs group that will try to get more information. If it’s relatively minor, the investor might file for arbitration with the NASD. If it looks like it has the potential to be relatively more serious then it gets a preliminary investigation.
Q: Is there a threshold below which you won’t pursue a case?
A: There is no floor on the size of the company or the dollar amount of the trading. We have brought cases for very small dollar amounts.
Q: Should the SEC have acted earlier in the Reed Slatkin case?
A: As soon as we had sufficient evidence to prove misuse of investor funds, we got into court on May 11 and obtained a temporary restraining order and asset freeze against Reed Slatkin.
Q: Another large case involved false news released on the Internet about Emulex Corp., which sent its stock plunging. How has the SEC responded to Internet abuses?
A: We have devoted a lot more staff and manpower to the Internet. We’ve got special branches in the regions that spend their entire time working Internet cases, following up on complaints. I couldn’t say I was comfortable that we’re getting most of the problems on the Internet because there may be things that we’re just not aware of.
Q: The Internet has made it easier to tout stocks in return for some form of compensation. Do you pursue a lot of these cases?
A: We brought a number of these cases last year, where Web sites were recommending a particular company’s stock without disclosing that they had already been given shares, or some of the stock in return.
Q: I often see disclosures in very fine print but it’s on the bottom of the Web page. What are the guidelines?
A: It has to be sufficient disclosure. Just saying we may be compensated for this is insufficient. It has to be somewhat specific for example, we have received shares in this stock before this promotion. It has to be a definite statement.
Q: What is the SEC doing to make investors more aware of what they might encounter on the Internet?
A: We have a section on our own Web site, www.sec.gov, that talks to investors and gives them a lot of pointers.
Q: You mentioned financial fraud by companies. Why do they report fraudulent numbers?
A: The phenomenon is fueled by companies trying to meet quarterly earnings per share projections. If the company doesn’t meet those EPS figures their stock drops like a stone. There’s been a lot of pressure to use very aggressive accounting policies and procedures to make the numbers. And then from aggressive they’ve crossed over the line to making up the numbers, or using just totally unjustifiable accounting procedures.
Q: What specific accounting tricks do you see?
A: Maximizing revenue, pushing revenues into this quarter when you don’t have that sale made yet. It’s going to come along maybe in the next quarter, so you push product out the door, send it to warehouses, use various fictions to be able to record a sale by March 31 instead of on April 5 or April 30, things like that. The other common phenomenon is to minimize expenses artificially.
Q: How is that done?
A: You can have reserves tucked away somewhere that allow you to cover some expenses that really should be ordinary expenses. We’ve also been seeing the pro forma numbers, which is not necessarily fraudulent because it’s not the audited financial statement. These are figures the companies come up with that aren’t GAAP (generally accepted accounting principles), to give people the general impression of profitability. Analysts aren’t fooled but individual investors might be.
Q: Brokerage analysts have come under fire for issuing favorable opinions on companies they or their firms have an interest in. Are there changes under foot?
A: There have been several developments that I believe will lead to some changes in how analysts’ reports are disseminated. The Securities Industry Association has published “Best Practices for Research” as guidelines. Also, on Aug. 15, NASD Regulation requested comment on a proposed rule that would enhance disclosure for analysts’ written reports and also in public appearances or advertising by firms.
Q: Can you give investors some pointers that might help them avoid being victimized?
A: Check out your broker or money manager. Be certain they’re registered with the SEC or with the state. Check out their disciplinary history. You can do that by calling our office or the NASD or the state securities agency. You can also look them up in the Central Registration Depository, which is available on the NASD Web site. That is the first thing I would do before I dealt with anybody. If they’re not registered, you have to wonder why they’re not.
Q: What are some other danger signs?
A: If there seems to be a rush to invest quickly, that the opportunity may disappear, you have to ask yourself, why are they calling me with this opportunity? If it’s so limited, why aren’t they taking it themselves?
