In recent months SEC enforcement cases related to public company reporting have focused on a number of key themes, including financial reporting fraud, cybersecurity and perks disclosures.\u00a0 It is clear the Enforcement Division is sending messages with these cases, and it is important for us as reporting professionals to understand these messages.\u00a0 To help in that process, here are recent cases focused on each of these themes.<\/p>\n
Cases focused on financial reporting fraud include:<\/p>\n
The Kraft Heinz Company and two former officers<\/a><\/p>\n Healthcare Services Group, Inc.<\/a><\/p>\n HeadSpin Inc.\u2019s former CEO<\/a><\/p>\n Tandy Leather Factory Inc. and former CEO<\/a><\/p>\n FTE Networks\u2019 former CEO and CFO<\/a><\/p>\n Under Armour Inc.<\/a><\/p>\n Cases focused on cybersecurity and related disclosures include:<\/p>\n Pearson plc<\/a><\/p>\n First American Financial Corporation<\/a><\/p>\n \n Cases focused on perks disclosures include:<\/p>\n The Dow Chemical Company<\/a><\/p>\n Argo Group International Holdings, Ltd.<\/a><\/p>\n Hilton Worldwide Holdings Inc.<\/a><\/p>\n MusclePharm Corporation<\/a><\/p>\n Provectus<\/a><\/p>\n <\/p>\n The Enforcement Division\u2019s 2020 Annual Report<\/a> reinforces these themes.\u00a0 The very first section of the main body of the report is titled \u201cFocus on Financial Fraud and Issuer Disclosure\u201d:<\/p>\n Integrity and accuracy in financial statements and issuer disclosures are critical to the functioning of our capital markets. During the last fiscal year, the Division maintained its ongoing focus on identifying and investigating securities laws violations involving different components of the financial reporting process.<\/p>\n In addition to traditional case sources, the Division took a proactive, risk-based analytic approach to identifying potential violations, which resulted in several important actions. For example, the Division\u2019s EPS (Earnings Per Share) Initiative uses risk-based data analytics to uncover potential accounting and disclosure violations caused by, among other things, earnings management practices to mask unexpectedly weak performances. Investigations under the EPS Initiative resulted in settled actions against Interface Inc. and two of its former executives, and against Fulton Financial Corporation, for improper accounting practices that resulted in the reporting of quarterly EPS that met or exceeded analyst consensus estimates. \u00a0The Division also used risk-based data analytics to uncover potential violations related to corporate perquisites, which led to a settled enforcement action against Hilton Worldwide Holdings Inc. for failing to fully disclose perquisites and personal benefits provided to executive officers.<\/p>\n Many of the cases above name individuals.\u00a0 The Enforcement Division\u2019s Annual Report<\/a> includes a section titled \u201cIndividual Accountability\u201d:<\/p>\n Holding individuals accountable is among the Commission\u2019s most effective methods of achieving deterrence. Experience teaches that individual accountability drives behavior and can also broadly impact corporate culture. In Fiscal Year 2020, 72% of the Commission\u2019s standalone actions involved charges against one or more individuals. This percentage is in line with the results of the last several fiscal years. The individuals charged in our actions include those at the top of the corporate hierarchy\u2014including chief executive officers, chief financial officers, and chief operating officers\u2014as well as gatekeepers like accountants, auditors, and attorneys.<\/p>\n The message in the volume of these cases is clear and all of us involved in the preparation and auditing of public company reports should listen carefully.<\/p>\n As always, your thoughts and comments are welcome!<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" In recent months SEC enforcement cases related to public company reporting have focused on a number of key themes, including financial reporting fraud, cybersecurity and perks disclosures.\u00a0 It is clear the Enforcement Division is sending messages with these cases, and it is important for us as reporting professionals to understand these messages.\u00a0 To help in … Continue reading Be Forewarned \u2013 SEC Enforcement Priorities<\/span>