SECThe Division of Enforcement at the SEC is a law enforcement agency established to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The actions of the Enforcement Division provide meaningful interpretations and applications of the U.S.
Securities Laws.

The SEC’s Division of Enforcement filed 755 enforcement actions in 2014, which is a 12% increase from the number in 2013. The number of actions undertaken by the SEC between 2003 and 2014 has been varying between 574 and 755.

Enforcement Actions By Fiscal Year
Year                                # of Actions
2003                              679
2004                              639
2005                             630
2006                             574
2007                             655
2008                             671
2009                            664
2010                            681
2011                            735
2012                           734
2013                           676
2014                           755

The enforcement actions can be grouped into the following broad categories, as identified by Floyd Advisory:

Reporting and Disclosure: Fraudulent financial reporting matters, cases involving misleading statements to investors, and faulty and/or inadequate disclosure matters

FCPA: Bribes and kickbacks to foreign officials to assist in obtaining or retaining
business as well as cases involving internal control violations

Broker-Dealer: Stock price manipulation, violations arising out of compliance deficiencies, naked short selling schemes, improper trading activities by Broker-Dealers

Delinquent Filings: Failures to make required and or timely filings with the SEC including Forms 10K, 10Q, 8K, and other mandated submissions

Insider Trading: Buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, nonpublic information about the security

Investment Company: Misleading disclosures, improper fee arrangements,
misappropriation of client assets, market manipulation, and other violations of
the Investment Advisers Act

Market Manipulation: Creating false appearance of a liquid and active market, fraud involving  dormant microcap shell companies, and other disruptive trading activities

Securities Offering: Misleading and fraudulent representations to induce investors to enter into securities transactions

Accounting and Auditing Enforcement Releases (AAER)

Within the enforcement actions (i.e., the population of civil lawsuits brought in federal courts, and its notices and orders), the SEC’s Division of Enforcement separately discloses accounting- and auditing-related actions as Accounting and Auditing Enforcement Releases (“AAERs”).

The AAERs include

• Financial Reporting Frauds
• Foreign Corrupt Practices Act violations (“FCPA”)
• Violations of Books and Records
• Financial reporting issues involving improper revenue recognition, manipulation of reserves, intentional misstatement of expenses, balance sheet manipulation, options backdating and defalcations.

As of December 31, 2014, the SEC issued 93 AAERs, which is a marginal increase from the corresponding numbers in 2013 and 2012 but a 48% decline relative to the number in 2009.

Year                        AAERs
2009                        180
2010                        129
2011                       127
2012                          85
2013                          87
2014                          93

Of the 93 AAERs in 2014,

• 25% of the cases involved balance sheet manipulation
• 22% of the cases involved intentional misstatement of expenses
• 20% of the cases involved improper revenue recognition
• 8% of the cases involved manipulation of reserves
• 5% of the cases involved options backdating
• 20% Other cases

Punchline

Beware of corporate misconduct in the U.S., you are under the strict surveillance of Uncle Sam.

October 24, 2P.

www.securitiesmatters.com/files/2015/03/FloydAdvisory.pdf

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