SEC Congressional Testimony– Part II


On three occasions recently, representatives of the SEC have given testimony to Congress.  On March 24, 2015, SEC Chair Mary Jo White testified on “Examining the SEC’s Agenda, Operations and FY 2016 Budget Request”; on March 19, 2015, Andrew Ceresney, Director of the SEC Division of Enforcement, testified to Congress on the “Oversight of the SEC’s Division of Enforcement”; and on March 10, 2015, Stephen Luparello, Director of the Division of Trading and Markets, testified on “Venture Exchanges and Small-Cap Companies.”  In a series of blogs, I will summarize the three testimonies. 

In the first blog in the series, which can be read HERE, I summarized Mary Jo White’s testimony.  This second blog in the series summarizes the testimony of Andrew Ceresney and in particular his words on the SEC’s enforcement focus for fiscal year 2016.

Andrew Ceresney, Director Division of Enforcement – Testimony to Congress

Mr. Ceresney began his testimony with a statement on the SEC’s mission and specifically “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” He continues by stating that a vital part of that mission is enforcing the securities laws with a strong enforcement program.  In fiscal 2014, the SEC brought 755 enforcement actions, the highest ever, and obtained $4.16 billion in awards.  Like Chair Mary Jo White, Mr. Ceresney credits data analytics and technology with assisting in the large volume of enforcement actions and in monitoring the markets. 

Mr. Ceresney laid out the current areas of SEC enforcement focus and gave a brief description of each.  I have rearranged the order of presentation of Mr. Ceresney’s speech in accordance with the more obvious interests of the small-cap marketplace.

               Insider Trading

The SEC has been focused on insider trading, filing 590 actions in the last five years alone.  The SEC utilizes technology to identify suspicious trading patterns, which now allows them to locate and pursue more insider trading cases. 

               Microcap Fraud/Pyramid Schemes

The SEC has created the Microcap Fraud Task Force to assist in pursuing enforcement in this area.  Areas of focus include recidivists and organized syndicates that use new media such as websites and social media to conduct fraudulent campaigns and manipulate trading.  The SEC is utilizing its power to impose more trading suspensions to cut short perceived pump-and-dump schemes.  The SEC is also mindful of and monitoring dormant shells that are often used by market manipulators.  Moreover, facilitators such as promoters, lawyers, accountants and transfer agents are under more scrutiny.  Of recent concern are pyramid schemes such as improper multi-level marketing and network marketing opportunities that are used to manipulate the market. 


A priority for the SEC is enforcement actions against gatekeepers including attorneys, accountants, fund directors, board members, transfer agents, broker-dealers and other industry professionals. 

               Financial Reporting, Accounting and Disclosure

The pursuit of financial reporting and auditing violations has always been a focus of the SEC and continues to be so.  Of particular focus has been revenue recognition violation, false management estimates, auditor independence issues and other false and misleading financial disclosures.  The enforcement has created the Financial Reporting and Audit Task Force to “develop methodologies and tools for detecting financial reporting issues, identify specific issuers with potential violations, determine whether further investigation is warranted, and refer appropriate matters to investigative staff.”

               Investment Advisors

Investment advisors continue to be an enforcement priority and, in particular, related to conflicts of interest, misrepresentations regarding performance or investment strategy, breach of fiduciary duty and fraud.  Moreover, the SEC has recently been attentive to custody rule violations, compliance programs and undisclosed fees, which they historically had not concentrated on.

               Market Structure, Exchanges and Broker-Dealers

Enforcement in this area has increased significantly due to the availability of data analytics and technology to both monitor the markets and, on the other side, as a tool for abuse by market participants. 

               Litigation and Trial

The SEC is committed to showing that they are willing to go the distance and take cases through trial.

               Complex Financial Instruments

The increase in complex financial instruments coincided with the recent financial crisis, which cases are coming to an end.  However, new and complex financial instruments remain a priority.

               Municipal Securities and Public Pensions

Particular areas of concern are misrepresentations in connection with bond offerings, undisclosed conflicts of interests and pay-to-play violations.  This past year the SEC brought its first ever emergency action to stop a fraudulent bond offering and obtained its first penalty against a municipal issuer.

               Foreign Corrupt Practices Act (FCPA)

Enforcement of the FCPA continues to be a priority as more and more companies are international and the marketplace itself becomes more global.

Click Here to Print SEC Congressional Testimony– Part II- L&C PDF Printout SEC Congressional Testimony– Part II 

The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of, the OTC Market’s top source for industry news, and the producer and host of, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

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