Thanks in large part to the Sarbanes-Oxley Act, the Securities and Exchange Commission is dealing with fewer fraudulent financial reporting cases these days, said Marc Fagel, director of the San Francisco regional office.
“I really do think it’s made a difference,” he said Monday during his keynote address at the 8th Annual Corporate Counsel Conference, West Coast, held in downtown San Francisco. “Companies have cleaned up their internal controls.”
It also helps that the economy has slowed down, auditors are becoming increasingly vigilant, and board and executives are more engaged. The bad news, Fagel said, is that these trends tend to be cyclical. “I have no doubt we’ll be busy in this area once again,” he said.
But there are many other types of cases keeping the agency busy. It’s cracking down on both individual and corporate violations of the Foreign Corrupt Practices Act, whether the bribes are big or small. “There is certainly no floor on this,” he said.
It’s bringing more cases against executives who break the SEC’s Regulation Fair Disclosure rule, which mandates that all publicly traded companies must disclose material information to all investors at the same time. In other words, they can’t reach out to favored analysts first.
The SEC is also looking into deliberate misconduct that might have contributed to the subprime mortgage meltdown, Fagel said, as well as inaccurate disclosures of executive compensation.
It’s now dealing with whistleblower case, too. The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted this past July was designed to encourage employees and others to report securities law violations to the agency.
“It’s going to bring dramatic changes,” Fagel said.
Meanwhile, the agency still handles the typical fraud cases it always has, from companies that issue false financial statements to insider trading, which tends to be “recession proof,” Fagel said. The agency has made several changes to deal with added pressure, Fagel said. It’s easier for regional divisions to get subpoenas now. There’s increasing specialization within the department. “That’s given us the ability to bring more sophisticated cases,” he said. So what’s the best thing a company can do if it’s caught in the SEC’s crosshairs? Cooperate and share information, Fagel said. The agency has started a new process that makes it easier to work out cooperation agreements.
“We can do more to offer assurances that it will benefit them in the long run,” he said.