Stephen J. Crimmins, James K. Goldfarb and Sharon A. O'Shaughnessy write: Public company audit committee members might be forgiven for sweating potential SEC scrutiny of late. We examine the SEC's focus on audit committee members as gatekeepers, review three recent enforcement actions to highlight conduct that attracts the staff's attention, and suggest certain safeguards that might help mitigate the chance of an SEC investigation or charge.
In 2013, with financial crisis enforcement cases winding down, the U.S. Securities and Exchange Commission announced a renewed focus on audit, accounting and financial reporting misconduct. (Subscription required.)
"This is a case first impression and one of signal importance in our administration of the Federal securities acts." With those words just over fifty years ago in Cady, Roberts, a Securities and Exchange Commission ("SEC") adminitrative proceeding, Chariman William L. Cary began the first insider trading decision ever issued under the federal securities laws.
For decades, the Securities and Exchange Commission’s Enforcement Division allocated few of its limited resources to the world of funds and advisers. The ’40 Act was left to the regulatory lawyers while, apart from the combined state-federal campaign against market timing and late trading a few years ago, the enforcement lawyers directed their investigations and litigation elsewhere.
The investor protection provisions of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, 111th Cong. (2010) promise to make major changes in the world of securities enforcement and regulation. Thanks to Dodd-Frank, we will shortly see whistleblowers enticed by potentially lucrative bounties for reporting violations to a much larger and more powerful SEC.
This article examines the unit’s new enforcement approach in dealing with complex products, its hotlycontested big first case, and its likely areas of future prosecutorial interest as it rolls out more investigations and cases in this challenging part of the SEC’s enforcement program.