It looks like the Securities and Exchange Commission (SEC) is going to crack down even harder on individuals looking to manipulate the market for their own needs this year, according to this morning’s statement from SEC Chairman Christopher Cox to the Banking, Housing and Urban Affairs Committee of the U.S. Senate.
“The initiatives underway at the Commission have a common theme: they are aimed at benefiting investors whose returns are dependent on healthy, well-functioning markets,” Cox said. “Back in Joseph Kennedy’s day, our first SEC Chairman was amazed that ‘one person in every 10′ owned stocks. But today, more than half of all households own securities.”
According to Cox, one of the problems of a rapidly evolving financial market is the increasing number of pitfalls and risks that evolve with it. As the market grows, “fraud artists” and other con men grow with it, taking advantage of people who may be less informed about the risks of the market or simply don’t know any better. And that’s what the SEC wants to stop.
“We are pursuing individuals and firms who have falsified corporate documents, engaged in self-enrichment to the detriment of their investors, and attempted cover-ups of this sort of conduct. We are investigating and filing actions against perpetuators of Internet scams, pump-and-dump schemes, and prime bank frauds, executives who have lied to their auditors, and accountants, lawyers and other gatekeepers who have joined in the fraud themselves.”
It sounds like the SEC’s already made some headway in this regard. According to Cox’s statement, the SEC has already returned over $2 billion to investors through the Sarbanes-Oxley Act, which the SEC enacted five years ago. Still, the SEC isn’t satisfied, and is looking to “improve on … efforts in this area” by creating an office dedicated exclusively to the distribution of Fair Funds by October.
In addition, the SEC has decided to improve on the Sarbanes-Oxley Act. It recently approved new guidance in implementing section 404 of the Act, and the SEC voted to approve the Public Company Accounting Oversight Board’s (PCAOB) new auditing standard to streamline and improve the audit of any company’s internal controls.
“The new auditing standard and new management guidance should encourage executives, auditors, directors and audit committee members to focus on the material risks that investors care about,” Cox continued. “These actions also represent more than two years of hard work aimed at improving the implementation of [this act] for companies of all sizes.”
The SEC also focused on the enforcement, education and “rulemaking” efforts on one of the most vulnerable groups of investors on the market – senior citizens. In addition to creating 26 enforcement actions aimed specifically at protecting elderly investors in the past year, the commission is also intent on educating elderly investors and their caregivers about some of the dangers of investing.
The SEC is also pumping up its Enforcement Division to deal with “emerging risks” as they occur, like stock options backdating and microcap fraud.
“We are paying particular attention to ensuring the fairness of our trading markets in order to maintain investor confidence in those markets,” Cox said in the statement. “In the past few years, the commission has brought numerous enforcement actions alleging that hedge fund portfolio managers engaged in insider trading. We have created a hedge fund working group within our Enforcement Division to … coordinate and enhance our efforts to combat hedge fund insider trading.”
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