The Securities and Exchange Commission (SEC) announced Tuesday three new initiatives to combat fraud. The new initiatives will build on the ongoing efforts of the SEC’s enforcement division to concentrate on high risk areas and bring the latest technology in its investigations.
Three new initiatives under the Division of Enforcement will be:
Financial Reporting and Audit Task Force
This team will be dedicated to detecting accounting and disclosure fraud. The task force will strengthen the Division’s ongoing efforts to identify violations related to the issuer reporting, preparation of financial statements, disclosure and audit failures. It will have accountants and enforcement attorneys working closely with the Division’s Office of the Chief Accountant, the Division of Economic and Risk Analysis and the Division of Corporate Finance. David Woodcock will be the Chairman of the Task Force.
SEC’s Micro-cap Fraud Task Force
This team will be targeting fraudulent conduct and abusive trading in micro-cap stocks, especially the companies that don’t report their financial results regularly. The task force will be investigating into the issuance, trading and marketing of micro-cap securities. The violators employ new media like websites and social networking sites to run fraudulent promotional campaigns and manipulate trading to amass hefty gains and disappear.
The task force will have the responsibility to develop and employ long-term strategies to detect and combat micro-cap fraud. Elisha Frank and Michael Paley will lead the Micro-cap Fraud Task Force. Over the past few months, the SEC has taken several steps to prevent micr0-cap frauds like pump and dump schemes. Recently, the SEC halted the trading of 61 micro-cap stocks to prevent a fraud. All of those 61 companies had been dormant in over the counter market.
Center for Risk and Quantitative Analytics
This unit will use quantitative data and analysis to identify high risk behaviors and transactions. That will help the Division of Enforcement to detect misconduct. This unit will work closely with other Commission divisions and offices, providing them guidance on how to strategically allocate resources in light of identified risks. CRQA will act as a source of information about the patterns and characteristics of possible fraud.
George S. Canellos, Co-Director of the Division of Enforcement, said that the best investigative ideas come from the grassroots, from staff members who observe the market first-hand. CRQA will assist these staff members.
