August 15, 2020

SEC Creates The Accounting Fraud Untouchables (or Something)

The Financial Reporting and Audit Task Force is one of the three new initiatives in the DepartmentDivision of Enforcement that were announced by the Securities and Exchange Commission today. So if you're one of those people that cause Andrew Fastow to blush, then you're likely to be right in the FRATF's wheelhouse: 

The Financial Reporting and Audit Task Force will concentrate on expanding and strengthening the Division's efforts to identify securities-law violations relating to the preparation of financial statements, issuer reporting and disclosure, and audit failures. The principal goal of the Task Force will be fraud detection and increased prosecution of violations involving false or misleading financial statements and disclosures. The Task Force will focus on identifying and exploring areas susceptible to fraudulent financial reporting, including on-going review of financial statement restatements and revisions, analysis of performance trends by industry, and use of technology-based tools such as the Accounting Quality Model. It will include Enforcement attorneys and accountants from across the country, working in close consultation with the Division's Office of the Chief Accountant, the SEC's Office of the Chief Accountant, the Division of Corporation Finance, and the Division of Economic and Risk Analysis.

That sounds pretty interesting and number-y, doesn't it? Andrew Ceresney, co-director of the Division of Enforcement said, "These initiatives build on the Division's unmatched record of achievement and signal our increasingly proactive approach to identifying fraud."

Huh. This strikes me as an odd statement for two reasons: 1) I don't really know who the SEC is competing against. Therefore, stating that it has some sort of "unmatched record of achievement" is kinda unnecessary and 2) "Increasingly proactive approach" is kinda, well, insulting. Lemme guess — This "increasingly proactive approach" began in early 2009 when the Ponzi schemes in the billionaires stopped imploding on themselves and the Commission started chasing more Ponzi schemes in the millions instead?

I mean, maybe, right? Because that's when the new administration took over, right around the time the Commission was done getting caught with their pants down by Madoff, Stanford, and Petters. Since then, they've been preoccupied with mini Ponzis and insider trading cases which has resulted in accounting fraud enforcement being virtually non-existent, as Francine McKenna reported in Forbes last year 

That report stated that 18.2% of the Commission's whistleblower complaints were for "corporate disclosures and financial fraud" even though there was only 79 accounting fraud and disclosure cases in 2012, down from 89 in 2011. That could be what Andy Fastow is talking about, no?

Again, maybe.

So while the FRATF will have plenty to keep themselves busy, at least they can hit the ground running: LINN Energy, come on down!

SEC Announces Enforcement Initiatives to Combat Financial Reporting and Microcap Fraud and Enhance Risk Analysis [SEC]
The SEC And Accounting Fraud Enforcement: No "There" There [Forbes]

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