NEW Background - Practices (Transactions & Corporate)

Transactions & Corporate


New SEC Enforcement Tools Target Financial Reporting, Microcap Securities Fraud, and Risk Analysis


On July 2, 2013, the Securities and Exchange Commission (SEC) announced three new initiatives intended to bolster the SEC's ability to recognize fraud in the marketplace. They are:

  • The Financial Reporting and Audit Task Force, which will focus on enforcement related to accounting and disclosure fraud. The task force, staffed by attorneys and accountants from across the country, will increase the SEC's review of financial statements, restatements, and revisions, using quantitative tools like the Accounting Quality Model, and reviewing financial results in the context of industry trends.
  • The Microcap Fraud Task Force, which will focus on fraud in the issuance and trade of the securities of microcap companies, particularly those companies that may not file regular public financial reports. Working alongside the existing Microcap Fraud Working Group, this task force will target the third party agents, such as attorneys, auditors, broker-dealers, and transfer agents, of microcap companies that may play a role in securities fraud.
  • The Center for Risk and Quantitative Analytics (CRQA), which will employ statistical data analysis to identify high-risk behaviors and transactions in the securities marketplace. The CRQA will work closely with other SEC divisions and offices and provide strategic direction to the Enforcement Division. 

These three programs are intended to help the SEC identify fraud proactively and provide additional deterrents to fraudulent activity in the securities markets, and they are in line with the SEC's increased focus on enforcement since Mary Jo White assumed the office of the Chair in April of this year. Whether an increase in investigations will deter fraudulent activity or merely cause an expensive distraction for companies engaged in otherwise legal activity remains to be seen. Crowell & Moring's Corporate Group is able to assist you in identifying and mitigating compliance risk factors prior to an investigation, and in working with the SEC should any investigation be initiated.

For the full text of the SEC's Press Release, please click here.

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