Tag Archives: SEC

Fake SEC Filings and Enforcement in the Electronic Age

By: George M. Wilson & Carol A. Stacey

 

Over the many decades that equity securities have traded in the U.S., and over the centuries that equities have traded around the world, unscrupulous people have always tried to find ways to cheat others. From pump and dump schemes to fake analyst reports new ways are constantly evolving as less than ethical people look for a quick buck. One of the more recently developed sneaky tricks is to create a fictitious user ID in the SEC’s EDGAR system and try to manipulate a company’s stock with fake SEC filings such as tender offer documents. In a way this is kind of a “pump and dump” strategy, and it is all about fake news.

 

In February of this year an artist in Chicago used this trick to try and manipulate Alphabet’s stock. In May 2015, Avon stock was used in a similar scheme. In September 2015, a person used an SEC filing in the name of “LMZ & Berkshire Hathaway Co.” to try and manipulate Phillips 66 and Kraft Heinz. The report was signed with a false name.

 

That same false name was used on a filing to announce a fake tender offer for Fitbit in November 2017.

 

When there are new kinds of crimes, the SEC sets out to develop the right tools and techniques to find the perpetrators and protect investors and the markets from bad actors. They are making progress with this new kind of electronic and internet based crime. On May 19, 2017, fairly soon after the Fitbit false filing, the SEC announced an enforcement action against Robert W. Murray, the alleged perpetrator of this fraud, with a parallel criminal action by the U.S. Attorney’s Office for the Southern District of New York. Mr. Murry is a mechanical engineer based in Virginia.

 

According to the SEC Murray wove a tangled technical trail:

 

The SEC alleges that Murray created an email account under the name of someone he found on the internet, and the email account was used to gain access to the EDGAR system.  Murray then allegedly listed that person as the CFO of ABM Capital and used a business address associated with that person in the fake filing.  The SEC also alleges that Murray attempted to conceal his identity and actual location at the time of the filing after conducting research into prior SEC cases that highlighted the IP addresses the false filers used to submit forms on EDGAR.  According to the SEC’s complaint, it appeared as though the system was being accessed from a different state by using an IP address registered to a company located in Napa, California.

 

In the words of enforcement, this attempt to hide his actions did not work:

 

“As alleged in our complaint, Murray used deceptive techniques in a concerted effort to evade detection, but we were able to connect the dots quickly and hold him accountable,” said Stephanie Avakian, Acting Director of the SEC Enforcement Division.

 

For all his effort, and for the potential consequences, Murray’s ill-gotten gains in this scheme were only about $3,100!

 

Always fun to see how new ways to try and cheat don’t evade the consequences!

 

As always, your thoughts and comments are welcome!

 

SEC Reporting and FASB Updates Specific to Small and Mid-Sized Companies Take Center Stage

The Financial Reporting Regulatory landscape is chock full of recent updates and new regulations, chief among them is the new FASB Revenue Recognition Standard and revised Lease Accounting. Most surveys agree that filers are well behind schedule in implementing the changes needed to comply. Practitioners at small and mid-sized companies will receive the essential information and advice needed to get up to speed by attending SEC Reporting & FASB Forum live program September 14-15 in Las Vegas.

http://www.pli.edu/Content/13th_Annual_SEC_Reporting_FASB_Forum_for/_/N-1z10lptZ4k?ID=298604

 

Breaking News: Late last week, the PCAOB voted to make a significant change in auditing standards:

 

“The standard will create the first significant change to the standard form auditor’s report in 70 years, according to PCAOB Chairman James Doty.”

http://www.journalofaccountancy.com/news/2017/jun/pcaob-expands-auditor-reporting-duties-201716790.html

 

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PLI will highlight this significant event at our upcoming live program next Monday (June 12th)   in New York City  “Audit Committees and Financial Reporting 2017”

Representatives from the PCAOB and SEC will be on hand to discuss the new standard.

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Audit Committees and Financial Reporting 2017: Recent Developments and Current Issues

Co-Chairs: Catherine L. Bromilow – Partner, Governance Insights Center, PwC Linda L. Griggs – Consultant John F. Olson – Gibson, Dunn & Crutcher LLP

Join PLI on June 12 for a look at the rapidly changing responsibilities of the audit committee. Our expert faculty of government regulators, public company directors, audit committee members, lawyers and CPAs will give you the information and tools you need to successfully perform and meet the many challenges facing audit committees and boards today. You will benefit from their practical advice and real-world experience.

 

New York City and Live Webcast – June 12, 2017

Groupcast Locations: Atlanta, Boston, Cleveland, Philadelphia, Pittsburgh and Mechanicsburg – June 12, 2017

Key Topics Will Include:

  • The most important developments in the past year for audit committees, including SEC and PCAOB developments
  • Implications of the Trump administration on regulations implementing Dodd-Frank
  • Key accounting developments: important changes and GAAP/IFRS convergence update
  • How to build and maintain strong compliance programs
  • Ethical issues arising when advising audit committees

Special Feature:

  • Up to one hour of Ethics CLE credit

Credit Information: CLE, CPE, CPD and CFE Credit

Register Now!

 

New FASB Lease Guidance – Any Early Adopters?

FASB lease guidance is effective in 2019 but early adoption is permitted. Are there any companies considering early adoption?

Here at SECI, the only early adopter that we know about so far is Microsoft.  They plan to early adopt on July 1, 2017 as their fiscal year ends June 30, 2017.

This is from their March 31, 2017 quarterly report on Form 10-Q:

Leases

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We will be required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

The standard will be effective for us beginning July 1, 2019, with early adoption permitted. We plan to adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We intend to elect the available practical expedients on adoption. While our ability to early adopt depends on system readiness, including software procured from third-party providers, and completing our analysis of information necessary to restate prior period consolidated financial statements, we remain on schedule and have implemented key system functionality to enable the preparation of restated financial information.

We anticipate this standard will have a material impact on our consolidated balance sheets. However, we do not expect adoption will have a material impact on our consolidated income statements. While we are continuing to assess potential impacts of the standard, we currently expect the most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. We expect our accounting for capital leases to remain substantially unchanged.

We are nearing completion of retrospectively adjusting financial information for fiscal year 2016 and are progressing as planned for fiscal year 2017. We expect adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases of approximately $5 billion as of June 30, 2016. ROU assets and lease liabilities for operating leases are expected to increase in fiscal year 2017 primarily due to the acquisition of LinkedIn Corporation (“LinkedIn”) and additional datacenter leases.

SECI is holding a live interactive workshop on Lease Accounting in New York and San Francisco.  Join us to hear more about how to implement the new standard!

Implementing the FASB’s New Lease Accounting Standard Workshop being held September 8th & November 3rd in New York City and October 16th in San Francisco. Attendees will learn the conceptual underpinnings, overall structure and details of this new standard as it applies to both lessees and lessors. Implementation considerations, system issues and related topics will be discussed in detail and concepts will be reinforced by use of examples and case studies.

http://www.pli.edu/Content/Implementing_the_FASB_s_New_Lease_Accounting/_/N-1z10dmcZ4k?ID=309314&t=WLH7_DPAD

Projects, Pronouncements and Developments Affecting Your SEC Reporting

How do the latest SEC, EITF, PCAOB and FASB updates affect your reporting? Attend FASB, SEC and PCAOB Update for SEC Reporting Professionals Workshop being held August 23rd in Grapevine, Tx. Get up to date in-depth information on all the latest developments and practical tips on applying existing financial reporting requirements, including pushdown accounting, debt issuance costs and commitment fees, discontinued operations and dispositions, segment reporting and goodwill impairment.

http://www.pli.edu/Content/FASB_SEC_and_PCAOB_Update_for_SEC_Reporting/_/N-1z10odqZ4k?ID=290526

How Has the “Salman” Decision Changed Insider Trading Law?

Insider Trading Law 2017

Chair: David I. Miller – Morgan, Lewis & Bockius LLP

In recent years, insider trading has been a critical area of criminal and civil enforcement, and it will likely remain so for some time to come. The Supreme Court issued its first insider trading opinion in nearly twenty years in the Salman appeal. Salman is significant and may assist the government in its ongoing insider trading enforcement efforts. Don’t miss out on this highly topical program where our experienced faculty will address the change in law, current and future areas of enforcement, and best compliance practices to prevent insider trading.

New York City and Live Webcast – July 21, 2017, 9:00 a.m. – 12:30 p.m. ET

Groupcast Locations: Atlanta, Boston, Cleveland, Indianapolis, Philadelphia, Pittsburgh and Mechanicsburg – July 21, 2017, 9:00 a.m. – 12:30 p.m. ET

Nashville – July 21, 2017, 8:00 – 11:30 a.m. CT

Key Topics Will Include:

  • The law of insider trading
  • Implications of Salman, Newman, and other recent decisions
  • The re-argument of the Martoma case
  • Best compliance practices and avoiding enforcement actions
  • Key strategies in defending criminal and civil insider trading actions
  • Current and future criminal and civil enforcement priorities for insider trading cases

Credit Information: CLE, CPE, CFE Fraud and CPD

Register Today!

Do you represent a public company?

SEC Reporting and Practice Skills Workshop for
Lawyers 2017

Hone your SEC reporting skills at this interactive Workshop designed specifically for lawyers. Attendees will build the foundational knowledge and practical experience necessary to prepare and review the SEC’s periodic and current reporting forms. Learn the structure and details of Forms 10-K, 10-Q, and 8-K, with particular emphasis on challenging and complex disclosures and how to effectively use the SEC’s guidance. This definitive course is perfect for beginners or as a refresher for experienced SEC reporting professionals.

Key Topics Will Include:

  • Key disclosures and issues in Forms 10-K, 10-Q, and 8-K, and the proxy statement
  • All-important sources of SEC reporting rules and guidance, including Regulations S-X and S-K, and the Staff Accounting and Staff Legal Bulletins
  • How to communicate with the public within the constraints of the SEC’s rules
  • How to ensure compliance by executives with Section 16 reporting
  • Latest developments, including the Dodd-Frank pay ratio and pay vs. performance disclosures

What You Should Bring:

Bring your company’s or a client’s most recent public disclosures: 10-K, 10-Q, recent 8-K and one or more press releases. If you work with a private company, filings from a company in the same industry are a reasonable alternative

Dates & Locations:

June 29-30: New York City

October 2-3: Dallas/Grapevine

October 26-27: Chicago

Register Now!

http://www.pli.edu/Content/SEC_Reporting_and_Practice_Skills_Workshop/_/N-1z10odhZ4k?ID=290518

 

Challenging Accounting Judgments, Principles Based Standards and ICFR

By: George M. Wilson & Carol A. Stacey

As you have undoubtedly heard from a variety of sources (including this post we made last December), the new revenue recognition, financial instruments impairment and lease standards all involve many new and sometimes complex accounting judgments and estimates.

 

Issues ranging from how to estimate current expected credit losses to what is stand-alone selling price confront us with new, difficult, and subjective judgment calls.

 

Even the Chief Accountant has discussed this issue in a recent speech, which we discussed in our blog. In his remarks, the Chief Accountant focused on ICFR, specifically mentioning:

 

“Having the requisite skills in the accounting and financial reporting area to make the many new, complex judgements required by these standards, and

 

Setting an appropriate tone at the top to assure these judgments are made in a reasonable, consistent and appropriate manner.”

 

To help us all deal with these challenges the Anti-Fraud Collaboration, a group made up of the Center For Audit Quality, FEI, NACD and IIA, has issued a report titled “Addressing Challenges for Highly Subjective and Complex Accounting Areas”.

 

This report is built on a foundation of detailed analysis of several SEC and PCAOB enforcement cases, a webcast and two workshops. The report has a robust discussion of several of the issues underlying these enforcement cases. One important conclusion drawn from this work is that a lack of controls surrounding subjective and complex accounting judgments is frequently a root cause underlying reporting problems. Based on this conclusion, the report includes a discussion of ways to help establish appropriate controls for such estimates and judgments. In fact, one of the enumerated objectives of the report is to:

 

“Facilitate a robust discussion about accounting policy, centering on highly subjective and complex accounting areas, and the design and operating effectiveness of ICFR”

In the report, there are several insights into ICFR issues surrounding complex judgments. For example:

 

Difficult Accounting Issues

 

Three accounting issues were problematic for companies under investigation: revenue recognition, loan impairment, and valuation. Both highly subjective and complex, these three areas were under stress during the financial crisis and therefore more prone to manipulation or error. The analysis of the AAERs also highlighted issues with the accounting policies pertaining to these areas. In the enforcement actions studied, the SEC cited that the companies either did not have an adequate accounting policy or procedure for the issue being investigated; the company was non-compliant with their existing policy or procedure; or that management acted to override the company’s accounting policy.

 

 

The report goes on to state:

 

For all members of the financial reporting supply chain, the importance of tone at the top cannot be overstated. In most cases of alleged financial fraud, the SEC names the CEO and/or the CFO in the complaint. Commission staff noted that the driver of earnings management—the catalyst for most fraud cases—is often top management, such that the focus on the CEO and CFO is not surprising. In cases the PCAOB has brought against individual auditors, it is usually the lead audit engagement partner or other senior members of an audit engagement team who are disciplined.

 

 

Hopefully, as you think about the design of ICFR over the new estimates and judgments required to implement the revenue recognition, lease and financial instrument impairment standards, you will find some helpful ideas in this report.

 

As always, your thoughts and comments are welcome!

 

 

Projects, Pronouncements and Developments Affecting Your SEC Reporting

How do the latest SEC, EITF, PCAOB and FASB updates affect your reporting? Attend FASB, SEC and PCAOB Update for SEC Reporting Professionals Workshop being held June 12th in Orlando. Get up to date in-depth information on all the latest developments and practical tips on applying existing financial reporting requirements, including pushdown accounting, debt issuance costs and commitment fees, discontinued operations and dispositions, segment reporting and goodwill impairment.

http://www.pli.edu/Content/FASB_SEC_and_PCAOB_Update_for_SEC_Reporting/_/N-1z10odqZ4k?ID=290525

Broker – Dealer Regulation Update

By: George M. Wilson & Carol A. Stacey

The pace of change challenged many broker-dealers and their auditors when the PCAOB became the standard setter for audits of broker-dealers. This is illustrated by the topics addressed in this PCAOB “Annual Report on the Interim Inspection Program”. Problems were found in areas including independence rules, auditing revenue recognition and auditing the Net Capital Rule.

 

To help broker-dealers and their auditors and attorneys keep up to date with this complex regulatory landscape we are offering our Fundamentals of Broker-Dealer Regulation program on July 17, 2017. The program will be presented in New York at our PLI Center. It will be webcast and groupcasts are available in several locations.

 

This program will help you build a solid foundation in the regulatory regime applying to broker-dealers, including what to expect next regarding broker-dealer regulation.  You will learn how the Securities Exchange Act of 1934, FINRA rules and state securities laws interact in governing the brokerage industry.

 

Significant focus will also be placed on recent exam and regulatory enforcement activity by the SEC, FINRA, and the states and about how broker-dealers are responding to these developments and the challenges ahead for the industry.

 

As always, your thoughts and comments are welcome!