Rare Dissent At SEC May Signal Disclosure Crackdown

Drinker Biddle & Reath attorney Stephen G. Stroup looks at some recent and possibly revealing developments at the Securities and Exchange Commission. First SEC Commissioner Luis A. Aguilar issued a rare written dissent to a settlement with executives at a computer services company. That dissent prompted an equally rare statement from Andrew Ceresney, SEC Director of Enforcement. He defended the Commission by declaring that financial fraud and accounting cases were a high priority, citing a year-over-year increase in the number of such cases taken up. The dissent from Aguilar was in regard to the settlement in a matter involving a company alleged to have artificially inflated its financials with a scam whereby another company redirected its orders through the accused company’s books, a practice which in addition to finding its way into misleading disclosures also garnered a bonus for the CEO and CFO. The two executives paid nearly $675,000 to settle the case. Aguilar said he considered the settlement emblematic of a broader trend, in which fraud charges are downgraded to books and records and internal control charges, with the perpetrators retaining their right to appear and practice before the Commission. “Future settlements,” writes Stroup, “will demonstrate to the accounting industry—and the securities profession as a whole—whether his publicized appeal prompted significant change at the Commission.”