Who is Stephen Cutler?

"An awful lot of people seem to be paying an awful lot of attention to 'tone at the top' [TATT] these days. ... '[TATT]' seems to have become a panacea for what is ill in corporate America, and an explanation for what has gone wrong. ... In the last two fiscal years [2003-4], the SEC has brought more than 1,300 civil cases and has obtained orders for disgorgement and penalties in excess of $5 billion. ... But it's a recitation of the names (and not the numbers) that I think best conveys a sense of the period we've been through. ... We're trying to create an environment that reduces the risk of misconduct at all levels of a company--an environment in which people who run public companies will do more than simply keep themselves out of jail. ... We're hoping that if [the CEO, CFO or General Counsel] sees that a failure of corporate culture can result in an fine that significantly exceeds the proverbial 'cost of doing business,' and reflects a failure on her watch ... she may have a little more incentive to pay attention to the environment in which her company's employees do their jobs. ... Of course, the flip side of this approach is that we have to reward companies that, notwithstanding a violation of the law, can demonstrate that they had or have made significant efforts to achieve a culture of compliance. ... And by the way, we're not alone in our concern in these matters. The [DOJ] (in the Thompson memo), and the U.S. Sentencing Commission (in the sentencing guidelines) have emphasized the need for companies to have strong ethics and antifraud programs. ... And make it clear that retaliating against or threatening a whistle-blower will not be tolerated and will be viewed as a 'fire'-able offense. ... All the words in the world mean nothing without deeds to support them. ... Once the recent scandals recede from our collective memories, it's corporate culture that will serve as the bulwark against the eruption of a new scandal", my emphasis, speech by Stephen Cutler (SC), then SEC Director of Enforcement, at http://www.sec.gov/., 3 December 2004.

Aren't we impressed? Who is SC? He was with Wilmer, Cutler & Pickering (WCP), a Washington, DC law firm from 1988 to 1999, when he joined the SEC. He was with the SEC from 1999 to April 2005, when he joined WilmerHale, successor to WCP, where he stayed until 2006, when he became Executive VP and General Counsel of JPMorgan Chase (JPM) a large bank.

SC says, "all the words in the world mean nothing without deeds to support them". I agree. "Once the recent scandals recede from our collective memories, it's corporate culture that will serve as a bulwark against the eruption of a new scandal", writes SC. Is SC serious? I think it's multi-billion dollar fines and prison sentences that do the trick. What does this mean, "sees that a failure of corporate culture can result in a fine that significantly exceeds the proverbial 'cost of doing business'?" It is an act that may result in a fine, not corporate culture's failure or success, whatever it is. I think "corporate culture" and "TAAT" are obfuscations that facilitate selective SEC and DOJ law enforcement against smaller corporations which cannot hire law firms larded with former SEC and DOJ attorneys. What else can it mean?

1,300 civil cases. Like the case of the "PWC Two", my 19 January 2008 post. In his speech, SC states, "the subjects of our enforcement actions in the past two years include ... J.P. Morgan/Chase". I kid you not. Then SC joins JPM about 25 months later. One can question how vigorous the SEC's actions are against its staff's prospective employers. Wait, didn't we see something in the press in the past two years that might bear on which enforcement actions the SEC takes on? Didn't Gary Aguirre (GA) allege the SEC fired him on 1 September 2005, about five months after SC left, because GA wanted to depose MS's CEO, John Mack, in connection with an insider trading investigation of hedge fund Pequot Capital? Didn't Charles Grassley conduct Congressional hearings about this? Was SC ignorant of GA's allegations while he SC was at the SEC? "On 5 October 2006, the SEC recommended no action be taken against Mack", http://www.wikipedia.org/. Note SC joins JPM 68 days later. Neat. Did JPM reward SC for his work for MS at the SEC? SC couldn't join MS, so Wall Street found a nice sinecure for SC at JPM. Is that what happened? Ladies and gentlemen of the blogosphere, you have heard the evidence, now render your verdict.

I disagree with Francine McKenna (FM), "'Tone at the Top' is a very powerful concept". I maintain it is no concept, just mumbo jumbo. I only know what people do. To me TATT is a diversion from looking at what people do. FM writes, TAAT "has very little meaning if the external auditors (and the internal auditors) are not willing to go the mat". I say it has no meaning. If the external and internal auditors are willing to go to the mat, the TAAT is irrelevent. As for the DOJ's concern with sentencing guidelines and such, see my posts on prosecutorial indescretion. I find ironic that SC writes, "retaliating against or threatening a whistle-blower will not be tolerated". Does that apply to the SEC too?