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By Yin Wilczek
Oct. 1 — The Securities and Exchange Commission has seen a “significant jump” in the number of enforcement actions involving financial fraud and issuer disclosures over the past year, Chairman Mary Jo White said Oct. 1.
White ascribed the increase to “new approaches and efforts” being undertaken by the SEC's Financial Reporting and Audit Task Force, which was established in June 2013 (128 SLD, 7/3/13).
“This task force has taken advantage of new sources of data on financial reporting, using innovative analytical tools to more quickly identify potential issues in financial statements and disclosures that merit further investigation,” she said.
White spoke about SEC enforcement initiatives at the International Organization of Securities Commissions' annual conference in Rio de Janeiro.
Earlier this year, SEC Enforcement Director Andrew Ceresney described financial reporting and audit fraud as the “next frontier” for the SEC, adding that there will be “a lot of activity” in that space (117 SLD, 6/18/14).
Although an SEC representative Oct. 1 could not offer firm statistics, Ceresney told the New York Times in September that the number of financial fraud and issuer disclosure cases already had increased 21 percent compared to the last fiscal year's total.
The SEC is expected to soon announce the enforcement results for fiscal year 2014, which ended Sept. 30.
In other comments, White said the SEC increasingly will take advantage of its ability to bar wrongdoers from the securities industry, from practicing before the commission and from serving as officers and directors of public companies. “Stopping someone from participating in the securities industry has bite and sends a powerful message that market participants watch, notice and remember,” she said.
White also said the SEC is focusing on “new and innovative actions” to broaden its “enforcement footprint” and increase deterrence. She cited, for example, the SEC's first enforcement action involving Bitcoin (183 SLD, 9/22/14) and its first case against an individual for misleading an investment adviser's compliance officer (167 SLD, 8/28/13).
Attorneys also have suggested that the SEC is ramping up its “broken windows” approach by targeting minor offenses that previously did not attract enforcement action.
Haynes & Boone LLP, as an example, cited in a Sept. 18 memorandum the commission's enforcement actions against various officers and companies for failing to promptly report their holdings and transactions in company stock (176 SLD, 9/11/14).
In a Sept. 23 memorandum, Ropes & Gray LLP also cited the SEC's action against an investment adviser alleging that it breached its fiduciary duty to two private equity funds by misallocating the funds' portfolio company expenses (184 SLD, 9/23/14). The law firm described the action as part of the SEC's broader trend towards “more non-fraud-based cases.”
In other discussions, White spoke about the importance of international cooperation among securities regulators. For the SEC to successfully conduct its investigations of cross-border fraud, “broad and effective use” of IOSCO's Multilateral Memorandum of Understanding and bilateral agreements “is more important than ever,” she said.
White said the SEC in fiscal year 2014 made more than 900 requests for international assistance, and responded to more than 500 requests from its international partners.
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The text of White's speech is available at http://www.sec.gov/News/Speech/Detail/Speech/1370543090864#.VCyBpxbIk74.
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