New Enforcement Initiatives by SEC Focus on Financial Reporting, MicroCap Fraud and Risk Analysis

At the beginning of July 2013, the Securities and Exchange Commission (SEC) announced the creation of three initiatives aimed at increasing the reach of the Commission’s Division of Enforcement and bringing greater strength to its investigative work. The first is the creation of a Financial Reporting and Audit Task Force, a group that will assist the Division of Enforcement with efforts specifically related to “detecting fraudulent or improper financial reporting.” The second is similar to the first – development of the Microcap Fraud Task Force – but instead designed toward monitoring fraud amongst microcap companies.

The third initiative, however, is perhaps the most pressing for the securities industry, and the most important for compliance efforts: the breaking down of “high-risk behaviors and transactions and support initiatives to detect misconduct” with the use of “quantitative data and analysis” by the SEC’s Center for Risk and Quantitative Analytics. The essence of this last initiative reflects an ongoing need for individual firms to regularly conduct risk assessments and risk identifications, in combination with employing analytic data tools to aid in this complex process. With the SEC focusing greater resources on performing detailed risk investigations and “developing methods of monitoring for signs of possible wrongdoing,” the need for firms to invest in thorough annual risk assessments by trained compliance consultants becomes all the more vital, particularly in maintaining sound and accurate reporting and in passing present and future internal audits.

For more information or other compliance assistance, please contact us at (619) 278-0020 to schedule a consultation.

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