In February, Cheryl Scarboro, an associate director in the Division of Enforcement at the Securities and Exchange Commission (SEC), secured the first settlement paid by a U.S. company – more than $7.5 million – arising out of corruption in the United Nation’s Oil-for-Food Program. Houston-based El Paso Corporation, a natural gas supplier, agreed to forfeit more than $5.5 million in profits and pay $2 million in penalties to settle charges filed by the SEC under the Foreign Corrupt Practices Act; those charges alleged El Paso paid kickbacks to the government of Saddam Hussein in its purchases of Iraqi oil under the Program, thus diverting the money from its intended humanitarian purposes.

“The Commission’s complaint alleged that El Paso paid bribes in connection with the Program, primarily through third parties,” Scarboro explains. “We brought the civil action against them because the company did not record the illegal payments in its books, and it failed to implement adequate internal controls to prevent the payment of bribes.”

Apart from its legalities, the El Paso case illustrates a key appeal that enforcement work has for Scarboro: variety. “Insider trading, accounting fraud, market manipulations – they are all very different,” says Scarboro, who was promoted to the position of associate director in October. “The facts differ, and the players differ. You need to understand the securities laws, accounting principles, how the financial markets operate, how stocks trade, and how they can be manipulated – it can be very complicated, and each case is very different. You are really learning something new all the time.”

Scarboro joined the SEC in 1992, having gotten a taste for securities-related work in the context of white-collar defense cases that she handled as an associate at Sutherland Asbill & Brennan in Atlanta. She found she enjoyed both the work and the relative autonomy given to junior attorneys. “You are principally in charge of running investigations,” she says. “I liked building the cases from the ground up: marshalling the facts, putting the pieces of the puzzle together, figuring out who did what. I have also enjoyed helping to make bigger decisions – figuring out the appropriate charges to bring and the appropriate relief to seek – as I have moved up the ranks.” Those moves included serving as counsel to former SEC Commissioner Arthur Levitt from 1996 to 1998 and, since 2001, as assistant director in the Division of Enforcement.

Among her varied cases, Scarboro has led the investigation of financial fraud charges against Kmart’s former chief executive officer and chief financial officer, alleging they made material false statements about the company’s liquidity directly prior to its 2002 bankruptcy filing, thus misleading the investing public. Those actions are in litigation, while separate charges against former Kmart employees relating to premature recording of vendor allowances that had the effect of artificially inflating earnings, have settled. Other recent settlements Scarboro has overseen include those of insider trading charges against the former chief financial officer of Capital One Financial Corporation for trading in the company’s stock, and a $25 million settlement of financial fraud charges against Doral Financial Corporation, a bank holding company that overstated its income by approximately $1 billion between 2000 and 2004. In that case, the Commission alleged that Doral Financial improperly accounted for the purported sale of approximately $4 billion in mortgages to another bank.

While many cases she deals with arise through self-reporting by companies and individuals, Scarboro and her team have to “stay ahead of what’s out there” in terms of potential violations. “We do our own homework, pay attention to what’s going on in the industry, and what areas look like they might be ripe for abuse.”

That scrutiny is increasingly being directed toward individuals who aid and abet the primary violator in securities fraud, Scarboro observes, such as attorneys, accountants, and vendors who may help public companies commit fraud by drafting false invoices or making false statements to auditors regarding future deals. She oversaw the charges, for example, filed against Kmart vendors over allowances which they claimed to have paid to the retailer to reserve shelf and promotional space, but in fact had not – misstatements regarding income that could mislead investors.

“I think the message in all of these is that we’re going to look hard not only at the primary violator, but at other parties that may have some liability themselves. You will continue to see cases against lawyers, accountants, and counterparties to transactions who may not have falsified their own books and records but may have, in some significant way, aided another public company in doing so.”