Posted On: June 26, 2013

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk

Securities and Exchange Commission Chairman Mary Jo White says that the agency will direct more resources toward going after financial fraud and accounting fraud. She was, however, clear to point out that this did not mean that a new accounting and financial fraud unit would be created, despite calls for one by some industry members. White spoke at the CFO Network 2013, where she also announced that the Commission was modifying its “neither admit, nor deny” settlement practice. This is an announcement that our stockbroker fraud law firm addresses in a different blog post.

The Commission is currently assessing its Enforcement Division’s specialized units, and this review is expected to result in certain size refinements and mandates, as well as the establishment of maybe one or more new units. Enforcement Division co-director George Canellos, however, said that the same reason why such a unit wasn’t set up three years ago when five specialized units (focusing on market abuse, asset management, the Foreign Corrupt Practices Act, public pensions, and municipal securities) were established still holds.

The SEC said then that nearly every regional office has attorneys and experienced accountants they believed are able to handle such cases. That said, the Commission will give over more resources to surveillance and become even more proactive about identifying where there are risks in accounting issues. This will include the Division of Economic and Risk Analysis’s development of an “Accounting Quality Model” that would let the SEC identify financial statement outliers. There also will be more partnering between the Enforcement Division’s Office of the Chief Accountant and the Division of Corporation Finance to come up with more accounting leads.

In other SEC news, regulator recently put out for comment a proposed rule change by the International Securities Exchange LLC. The modification seeks to limit market-maker risk as this relates to complex orders. Market-makers would have to put in values in risk providers that are exchange provided while the kinds of complex orders allowed to “leg-into the regular market” would become limited. The ISE wants market-makers to be required to put in values in all four quotation risk-management parameters for option classes that they enter quotes in. Market-makers hopefully then would be prevented from inadvertently putting in quotes that don’t have risk-management parameters.

Meantime, the Securities and Exchange Commission's Investment Management Division is hard at work to come up for a rule for a summary prospectus for variable annuities. According to division director Norm Champ, the rule would seek to establish transparency for investors and make it easier to digest complex disclosures with more user friendly information. The IM division also is taking a closer look at “layered disclosure” for variable annuities, which would give investors specific information about products while giving them the means to ask for more data if they want it.

Our securities fraud lawyers would like to offer you a free case assessment. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Accounting Fraud Targeted, Wall Street Journal, May 27, 2013


SEC's IM Division ‘Working Hard' on Rule For Variable Annuities Summary Prospectus, Bloomberg/BNA, June 19, 2013

Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Market Maker Plus Rebate Program, SEC, April 18, 2013 (PDF)


SEC officials warn insurers on annuity disclosures, VA changes, Investment News, June 18, 2013


More Blog Posts:
“Ask and It Shall Be Received": Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public RecordsCybersecurity Breaches, Stockbroker Fraud Blog, June 20, 2013

SEC Tells Financial Firms That Settling Without Denying or Admitting to Wrongdoing is No Longer Allowed in Certain Securities Cases, Institutional Investor Securities Blog, June 26, 2013