Risk & Compliance

SEC Enforcement Aims High

In fiscal 2005, 24 percent of SEC financial reporting actions involved Fortune 500 companies, compared with just 5 percent in 1998.
Stephen TaubDecember 8, 2005

The target of a Securities and Exchange Commission enforcement action is increasingly likely to be a large company, according to Reuters, citing SEC data.

In fiscal 2005, 24 percent of SEC financial reporting actions involved Fortune 500 companies, their executives, or those they do business with, such as auditors and vendors, the wire service reported. This is up from 20 percent in 2004, 17 percent in 2003, and just 5 percent in 1998.

“This increase is reflective of increased staff resources over the years, as well as our willingness and ability to take on some of the largest and most complex cases,” said Susan Markel, the new chief accountant of the SEC’s Enforcement Division, according to Reuters.

Lately even so-called gatekeepers have become targets. They include KPMG, which agreed to pay $22 million to settle charges related to its 1997-2000 audits of Xerox Corp., and Deloitte & Touche, which agreed to pay $50 million to settle regarding its audits of Adelphia Communications.

Former federal prosecutor and SEC attorney Seth Taube, now a partner at the law firm of Baker Botts, told the wire service the recent trend has less to do with the SEC intentionally targeting these companies and more with the companies themselves. “In the post-Enron world, both the SEC and the Justice Department reward self-investigation and self-reporting,” as well as continued cooperation with investigators, said Taube.

“That makes the job of the SEC easier because industry itself untangles the web and presents it neatly to the commission. This is a sign that corporate America has responded” to post-Enron legal reforms, Taube added.

Altogether, the SEC brought more than 600 enforcement actions in fiscal 2005, according to Reuters. About 29 percent involved financial fraud, with revenue-recognition cases heading the list.

4 Powerful Communication Strategies for Your Next Board Meeting