Posted By Gbaf News
Posted on February 5, 2014
Public companies and accounting firms are back in the SEC’s sightlines, as the Commission has vowed to put renewed emphasis on pursuing potential fraud by public companies and auditors.
Law firm Morrison & Foerster has been watching the tide turn in this area and just issued its first Financial Reporting and Accounting Enforcement Annual Review.
Here’s a link:
Brian Neil Hoffman
Brian Neil Hoffman, a former senior attorney in the SEC’s Division of Enforcement and a member of MoFo’s securities litigation, enforcement, and white collar defense group, is chief author of the review. He writes: “If the public statements of the SEC Commissioners and staff are to be believed, brace yourself for the coming wave of financial reporting and accounting enforcement matters.” That follows somewhat restrained enforcement in this area coming out of the financial crisis, as the government was focused more on assigning blame for the meltdown, accompanied by an intense wave of insider trading cases.
MoFo’s review looks at key settlements and trials of the last year involving allegedly improper accounting. Also included are developments in what the firm calls “a banner year for the SEC whistle blower program.”
Drilling down, MoFo produces an interesting infographic showing how different types of defendants stacked up in financial reporting cases in 2013. Directors and officers led all groups, comprising 42% of defendants, followed by public companies (29%), auditors (16%) and audit firms (4%).
In a separate graphic, the firm looks at which venues drew the most cases last year. The District of Columbia led the way, followed by the Southern District of New York, but cases also were filed in numerous other jurisdictions around the country as well. MoFo even charts up which kinds of cases the SEC prosecuted most. The alleged misuse of corporate assets topped the list, followed by cases alleging overstated assets and those involving misstated business prospects. Areas drawing the least number of actions last year were those stemming from revenue recognition issues and understatement of assets, although the SEC also has promised to scrutinize those topics in the future. There is also a chart comparing numbers of cases that litigate vs. those that settle and the forum in which the cases were filed.
Mr. Hoffman expects financial reporting enforcement to be a major priority by the SEC in the year ahead. He quotes the SEC’s current Enforcement Division chief Andrew Ceresney, who called accurate financial reporting “the bedrock upon which our markets are based,” and followed up by declaring, “the importance of pursuing financial fraud cannot be overstated.”
Among other topics, MoFo’s review covers:
- Redesigning the SEC’s Division of Enforcement, Again
- Focus Areas: What’s Next
- Public Company, Officer, and Director Trends
- Audit Firm and Auditor Trends
- Developments at the PCAOB
Mr. Hoffman can offer up additional views on how the SEC may go after accounting and financial reporting cases in the year again.
