Risk & Compliance

SEC Financial-Reporting Charges Up 59 Percent

The commission's enforcement division spent more time this year cracking down on corporate wrongdoing in financial disclosures.
Sarah JohnsonNovember 16, 2007

The Securities and Exchange Commission brought 59 percent more enforcement actions involving financial disclosure and reporting in fiscal year 2007 than it did last year.

The 220 enforcement actions for financial-disclosure missteps is the largest number since at least 2001, far outstripping the 138 during 2006. Twenty-four of the fiscal 2007 actions were brought against companies or corporate employees accused of not providing correct information to investors when they backdated stock-option grants.

Backdating-related charges made in FY 2007 include those brought against Juniper Networks, Integrated Silicon Solution, and former executives at Apple, Brocade, Brooks Automation, and KLA-Tencor.

Indeed, the SEC made good on chairman Christopher Cox’s promise last year that more backdating charges would come to fruition in 2007. Last year, when probes into companies suspected of backdating were just beginning, the SEC’s enforcement division reported an 8.9 percent decrease in its total number of actions. At the time, legal experts theorized that budget and lower staffing levels may have slowed the SEC down.

Recent no-action letters deposited by the SEC into company inboxes show that although the staff has been busy with backdating-related work, it was not necessarily bringing charges. In recent weeks, at least six companies have received word that the regulator’s investigations into their historical stock-option granting practices have been dropped. All told, the SEC has investigated about 130 companies.

Since 2005 more than 200 companies have reported internal investigations into their historical stock-option granting process or revealed they were the subject of a federal investigation. The 2007 numbers reflect a rise of more than 14 percent in the total number of enforcement actions, including insider trading and delinquent filings, from 574 to 656. According to Cox, the 656 actions mark the second-highest number in the commission’s history.

The SEC has also revealed that it has brought 21 enforcement actions against hedge funds for securities-fraud violations, including insider trading. Further, 125 people were barred by the SEC from serving as officers or directors of public companies in fiscal year 2007.