SEC sets new efforts on accounting fraud, microcap trading

WASHINGTON Wed Jul 3, 2013 1:52am IST

A man walks past a doorway at the Fort Worth Regional Office of the Securities and Exchange Commission (SEC) in Fort Worth, Texas June 28, 2012. REUTERS/Mike Stone

A man walks past a doorway at the Fort Worth Regional Office of the Securities and Exchange Commission (SEC) in Fort Worth, Texas June 28, 2012.

Credit: Reuters/Mike Stone

WASHINGTON (Reuters) - U.S. securities regulators on Tuesday laid out new enforcement initiatives to improve detection and investigation of accounting fraud and fraudulent behavior involving microcap stock trading.

George Canellos and Andrew Ceresney, co-directors of the Securities and Exchange Commission's enforcement division, said they were launching a financial reporting and audit task force, a microcap fraud task force and a Center for Risk and Quantitative Analytics to ferret out risks and threats to investors.

The new efforts are the latest in a broader revamp of the SEC's enforcement division since April, when former federal prosecutor Mary Jo White took the helm of the agency.

White wants to return the SEC's focus to accounting and financial reporting fraud, an area that was hot in the days of Enron and Worldcom but had taken a backseat in recent years to areas such as insider-trading.

The changes to the enforcement division have involved new hires, major adjustments to the agency's settlement policy, and structural changes designed to better deploy the SEC's accountants and improve its chances of winning trials.

The accounting task force will be headed by David Woodcock, an attorney and certified public accountant who heads the SEC's Forth Worth, Texas, office. It will explore areas that are susceptible to fraud, including financial restatements and revisions.

The Center for Risk and Quantitative Analytics, to be headed by Lori Walsh, will assist the effort using technology and data-mining tools to detect problems in the market, the SEC said.

The third target area - abuses in microcap companies - has already been a focal point for the SEC, which launched a microcap working group in 2010. This group brought together enforcement lawyers and examiners interested in detecting and preventing pump and dump-type schemes.

Canellos and Ceresney said this new task force will not replace the working group, but will differ because it will consist of staff who only investigate microcap cases.

It will be led by Elisha Frank, assistant regional director in the Miami regional office, and Michael Paley, assistant regional director in the New York regional office.

(Reporting by Sarah N. Lynch; Editing by Karey Van Hall, Gerald E. McCormick and David Gregorio)

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