While the financial crisis may have focused the U.S. Securities and Exchange Commission's attention onto Wall Street, it seems that now that the fires from that blowout are settling, the commission's focus is shifting from banks and investor fraud to everyday businesses, whether it's investigating accusations of systemic tax evasion or sketchy accounting practices.
The SEC is set to refocus and reshuffle assets across departments, meaning that a section of hyper-vigilant accountants are set to start looking very closely at profits and reported figures from major corporations. There will be more people investigating issues such as Revlon's reported attempt to hide an independent third party's assessment of its attempt to go private from its investors. Fraud such as this will also form a good portion of the SEC's investigations. Revlon has neither admitted nor denied wrongdoing, but it has just paid an $850,000 penalty for its SEC violations.
Of course, it means that accountants will have to be extra vigilant about their accounting practices and how they report their figures. It's equally important that they keep an eye on how their figures tally with the figures being reported as well. The SEC will be looking at misreported figures and the like, according to sources close to the SEC. Investor fraud won't be so much of a priority, but it will continue to form a small number of the cases that the SEC will investigate.
It seems that the SEC doesn't feel that accounting fraud has disappeared: where there's money involved, some people will always seek to keep as much of it as possible. Oddly enough, though, the SEC has also developed a computer program to sift through financial reports to detect word choices that apparently appear in reports that are associated with so-called creative accounting practices. This program will be one of the key tools the SEC's teams can use and may be based on a similar program that trawled hedge funds for unusual trading patterns in an attempt to quickly identify investor fraud and other SEC violations.
While the five teams that spearhead the effort to keep financial institutions honest and reduce the likelihood of investor fraud apparently won't be dismantled, they may have assets shifted to other teams. Whether these assets are personnel, equipment, or simply time is unclear. What is certain is that the SEC's priorities have to change.
While it seems unlikely that the commission will find anything on the scale of Enron's collapse or Bernie Madoff's Ponzi scheme, which wasn't so much investor fraud as wholesale theft, the focus back onto everyday accounting fraud is a good thing: it means that the SEC considers the finance sector reasonably stable. Few of the cases from the financial sector remain, so it should be back to the SEC's core business—at least until the next financial crisis hits.
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