SEC Increasing Accounting Fraud Investigations


As its financial crisis enforcement slows, the U.S. Securities and Exchange Commission (SEC) is now turning its attention back to accounting fraud and other violations of financial disclosure laws. The SEC is introducing a technological innovation, dubbed an accountant-style “RoboCop” in late 2013.  This new computerized tool is designed to trigger alerts regarding suspicious activity at companies within the jurisdiction of the SEC.

This new tool will alert the SEC to certain red flags put up by companies, such as;

  • Accruals, which are non-cash entries that are viewed as being susceptible to manipulation
  • A high proportion of off-balance-sheet transactions
  • Frequent changes in auditor
  • Delays to earnings announcements

Although many of these activities are innocent, a company may be subject to an arduous and probing investigation if automatic alerts are triggered. One of the most common reasons that the SEC files charges of accounting fraud is inflating company revenues, which can be effectuated in a number of ways. For example, a company might prematurely recognize revenue for work that had not been performed yet. Another common reason for accounting fraud charges is misstating operating income to investors.

Regulations regarding financial crimes are often extremely confusing, and it is sometimes difficult to distinguish purposeful manipulation with simple errors or mistakes. SEC fines can be steep and the consequences can be long-lasting. Often those involved are barred from serving as officers or directors of a public company for 10 years.

Posted in Criminal Defense

Tagged accounting fraud, criminal defense attorney, ohio criminal defense lawyer, RoboCop, SEC

Topics:  Accounting Fraud, Audits, Compliance, Enforcement, Fraud, SEC

Published In: Criminal Law Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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