New SEC Task Force Fights Financial Fraud And Encourages Collaboration with Whistleblowers

Last month, I attended SEC Speaks, an annual conference in which the SEC’s leadership provides insight into the agency’s priorities, projects and plans for the future. One of the key initiatives highlighted this year was the SEC’s new Financial Reporting and Audit Task Force. Comprised of SEC lawyers and accountants from around the country, the task force seeks to combat accounting and auditing fraud, like the well-known frauds perpetrated by Enron, WorldCom and Adelphia. As the SEC’s Director of Enforcement Andrew Ceresney outlined in a speech last September, the task force will place renewed emphasis on generating cases related to a wide range of possible financial reporting violations, including reserve manipulation and improper revenue recognition practices, as well as independence violations by auditors (for more information on different types of financial fraud, please see our Securities Law Primer.)

While accounting cases have not been making as many headlines in recent days as they did in the Enron-era, accounting fraud is still pervasive – and incredibly harmful to investors and the integrity of the financial markets – making this task force an important and welcome development. What’s particularly exciting to me about the task force is the fact that it has identified encouraging and collaborating with whistleblowers as one of its principal goals. Moreover, as the task force’s website reflects, it also recognizes that these potential whistleblower partners can and should include not only corporate insiders, but also “gatekeepers” such as auditors and attorneys, who often have first-hand knowledge of securities violations. Likewise, the task force identifies the important role that academics and other experts can play in promoting market integrity issues and pioneering new methods of fraud detection (as explained more fully in our SEC Whistleblower Program Handbook, outsiders such as academics may also be eligible to act as whistleblowers under the SEC Whistleblower Program rules if they voluntarily provide original information, such as an original analysis of a company’s public filings that reveals fraud, that leads to a successful SEC enforcement action.) Accounting-related misconduct is unlikely to be eradicated anytime soon, but by marshaling the combined efforts of the SEC Staff, whistleblowers, responsible gatekeepers and the academic community, I believe the task force can and will make a significant difference in the fight against financial fraud.

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