For Boards, S.E.C. Keeps the Bar Low

by Floyd Norris for The New York Times, March 3rd, 2011.

When a vast accounting fraud is disclosed, or when a chief executive is caught looting a company, it is to be expected that the Securities and Exchange Commission will bring civil charges against the responsible executives. In egregious cases, criminal prosecution may follow.

But what happens to the corporate directors who were supposed to be watching over management?

Usually, nothing. They are likely to be named in shareholder suits, but those suits are usually settled out of court, and the insurance company, or the company itself, pays the bill. If it cannot be proved that the directors actually took part in the fraud, they almost certainly will escape with no penalty beyond a tarnished reputation.

That reality made it all the more surprising this week when the S.E.C. filed civil charges against three former outside directors of a military contractor, DHB Industries, which sells body armor to the military and to law enforcement agencies. (continue reading… )



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