The SEC's Talons Are Out

The SEC's Talons Are Out
February 17, 2014

Publicly traded companies can expect a significant ramp up in SEC enforcement actions in 2014 following a notable lack of action in 2013, according to a recent article, No More Mr. Nice Guys: SEC Sharpens Talons for 2014.

"Recent developments suggest that the downward trend will turn, perhaps dramatically, in 2014," said the article by Nicholas Morgan and Jennifer Feldmann.

Even worse, the authors speculated "heightened expectations may create an incentive for the Enforcement Division to bring marginal cases not well supported by the fact or law."

They added, "two recent trial losses for the SEC suggest its troubling willingness to allege financial fraud in cases where the facts or the law don’t support the allegations."

The authors cited three reasons for increased scrutiny in 2014:

  1. The development of the much-discussed Accounting Quality Model known as RoboCop, which is designed "to discern whether a registrant’s financial statements stick out from the pack." If yours does, expect to do some explaining, even if you aren’t cited with a violation.

  2. The launch of the SEC Financial Reporting Audit Task Force. With more lawyers and accountants working the cases, it’s reasonable to expect increased prosecutions.

  3. The Dodd-Frank whistleblower bounty program, which "is gaining steam" in large part because "informants who provide the SEC with original information may ultimately receive a percentage of any monetary recoveries." The agency received more than 500 tips each year in 2012 and 2013 with one whistleblower last year receiving a $14 million bounty. That award alone is expected to "drive the number of tips still higher in 2014," said.

It is also worth noting that, as we reported in XBRL: Is It Time to Simplify, the SEC is under pressure from Congress to improve its enforcement of the quality of XBRL data and to increase the use of the data in its review process. The pressure from Congress coupled with development of the Accounting Quality Model make it more important than ever to be confident in the reports that you file.

If your company has not made XBRL a priority, it might be time to reconsider, especially now that the limited liability period has expired. Click here to read the original article.

Susan Yount

About the author

Susan Yount is the Director of Reporting Practices for Workiva. Previously, she served as the Associate Chief Accountant in the Office of Interactive Data at the SEC.