SEC cancels Eisner charges in 2nd rebuke of own staff


WASHINGTON - The U.S. Securities and Exchange Commission dropped a claim against Walt Disney & Co. Chief Executive Officer Michael D. Eisner, freeing him from a settlement the company reached with the agency this week over disclosure violations, people familiar with the matter said yesterday.

Eisner and the SEC staff had reached an accord in which he took blame for not telling investors the company had business ties to some directors, said the sources, who asked not to be named. The agreement didn't involve a fine and called for Eisner to refrain from violating securities laws, the sources said.

The SEC commissioners voted 2-2 on the settlement, ending the case against Eisner and marking the second time this month the SEC balked at approving a staff recommendation to penalize a company official.

The decisions were a rare rebuke to the commission's enforcement unit and a signal of growing disagreement at the agency over assigning blame for corporate wrongdoing, securities lawyers said.

"This split in back-to-back important cases suggests a fairly significant division within the commission itself," said former SEC lawyer David Gourevitch, now in private practice in New York. "It reflects a willingness to second-guess the enforcement division, and that's extraordinary."

On Dec. 9, SEC Chairman William H. Donaldson and two commissioners rejected a staff settlement with former Global Crossing Ltd. Chairman Gary Winnick.

SEC spokesman Matt Well declined to comment on the votes.

The commission's deliberations on Eisner, 62, and Winnick, 57, were conducted at a closed-door meeting this month. They came against the backdrop of a campaign by lobbying groups such as the U.S. Chamber of Commerce to get the SEC to ease up on companies.

In the SEC's settlement Monday with Disney, the second-largest U.S. media company didn't pay a fine and agreed to stop violating securities laws or be subject to stiffer penalties in the future. The agency accused Disney of failing to tell shareholders about business relationships between the company and six of its board members. The company didn't admit or deny wrongdoing in the settlement.

Disney spokesman John Spelich did not respond to repeated requests for comment. In January, when Disney disclosed that the SEC was investigating Eisner, company spokeswoman Zenia Mucha said that "the SEC staff has taken a position that Michael Eisner bears a measure of responsibility for some portion of the disclosure lapses. And as the CEO, he takes that responsibility seriously and is prepared to accept that responsibility."

Donaldson, the SEC's Republican chairman, and Commissioner Harvey Goldschmid, a Democrat, backed the enforcement division's agreement with Eisner, the people familiar with the matter said. The two said Eisner should be held accountable because he knew about some of the board members' business dealings with Disney.

The SEC requires companies to alert shareholders to such so-called related-party transactions because they may involve conflicts of interest.

Republican Commissioners Paul Atkins and Cynthia Glassman opposed the deal, saying chief executives of large companies can't be blamed for not knowing every piece of information that should go into the company's public SEC filings, the sources said.

Roel Campos, a Democratic commissioner, was recused from the case because of an unspecified conflict of interest, according to the people.

The SEC commissioners also split this month over a staff proposal to sanction Winnick as part of a settlement with Global Crossing, the telecommunications company he founded in 1997. The company filed for bankruptcy protection in 2002.

In that case, Donaldson sided with Atkins and Glassman in opposing the staff recommendation at the Dec. 9 meeting, according to people familiar with the matter. SEC enforcement lawyers had sought to fine Winnick for failing to police the accuracy of the Hamilton, Bermuda-based company's financial disclosures.

Donaldson and the other Republican commissioners said the SEC would be stretching the law by faulting Winnick, a non-executive chairman, for not detecting and preventing the company's improper disclosures, the people familiar with the matter said.

The SEC hasn't announced a final settlement with Global Crossing. Under the agreement recommended by the agency's enforcement staff, the company, which is run from Florham Park, N.J., would be accused of faulty disclosure, not fraud, and wouldn't be fined.

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