News highlights for September 2013


Fraudulent financial reporting and auditing are among the targets of three new Division of Enforcement initiatives the SEC announced in its efforts to detect and investigate fraud and misconduct.

The new Financial Reporting and Audit Task Force will be dedicated to detecting fraudulent or improper financial reporting. The task force is designed to enhance ongoing enforcement efforts related to accounting and disclosure fraud.

The enforcement division also has formed the Microcap Fraud Task Force to target abusive trading and fraudulent conduct in securities issued by microcap companies, especially those that do not regularly publicly report their financial results.

In addition, the division has created the Center for Risk and Quantitative Analytics. The center will use data and analysis to profile high-risk behaviors and transactions. Its objective is to support initiatives to detect misconduct to help the Division of Enforcement investigate and prevent conduct that harms investors.

The initiatives signal an increasingly proactive approach to identifying fraud, said Andrew Ceresney, a co-director of the enforcement division.

“By directing resources, skill, and experience to high-impact areas, we will increase the potential for uncovering financial statement and microcap fraud early and bring more cases aimed at deterring these types of unlawful activity,” Ceresney said in a news release.

The principal goal of the Financial Reporting and Audit Risk Task Force will be fraud detection and increased prosecution of violations involving false or misleading financial statements and disclosures. That task force will expand enforcement efforts to identify fraudulent preparation of financial statements, issuer reporting and disclosure, and audit failures.

Enforcement lawyers and accountants from across the country will work to identify and explore areas susceptible to fraudulent financial reporting. They will conduct ongoing reviews of financial statement restatements and revisions. They also will analyze performance trends and use technology-based tools such as the Accounting Quality Model, a flexible modeling framework designed to help identify earnings management in financial reporting.

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