SEC Enforcement Targets Fraud


Andrew Ceresney, the new co-head of enforcement for the U.S. Securities and Exchange Commission, confirmed last week that the enforcement division is shifting its priorities to focus more on accounting fraud, as well as complex securities, microcap fraud, market structure and implementation of new rules.  As we noted in April, the enforcement shift is likely to help forensic research firms if accounting fraud again makes headlines.

Ceresney, a protégé of the SEC Chairman Mary Jo White, was a prosecutor under White when she served as U.S. Attorney for the Southern District of New York. He served under her as a member of the securities and commodity fraud task force and major crimes unit in the Southern District, and then followed her in 2003 to Debevoise & Plimpton LLP, where she was a partner.

The Wall Street Journal’s CFO Journal reported Ceresney’s comments at an industry conference last week, during which he said that the agency has recently started task-forces on financial reporting and accounting fraud and is looking more closely at fraud in microcap stocks.  The division is also focusing on issues related to changes in high-speed and off-exchange trading and reorganizing its structured products unit to focus on “complex financial instruments” such as derivatives, exchange-traded funds, collateralized loan obligations and credit rating agencies.

Manpower is being shifted from task forces focused on matters related to the financial crisis, rather than from insider trading cases which are likely to continue to be an agency priority.

Forensic research firms, particularly those generating short ideas for hedge funds, have been hard hit by the difficult market for short investors which has forced some short-oriented hedge funds to close their doors.  They could use a boost.

However, as we noted in April, the SEC’s best intentions frequently get waylaid: “Ultimately, the SEC, like most regulators, is largely reactive. It is not uncommon for SEC enforcement to initiate investigations in the wake of major media stories. Despite White and Ceresney’s intentions, the SEC’s enforcement priorities will largely be set by the Wall Street Journal.”


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