An Analysis of the SEC’s Prosecution of Financial and Accounting Related Fraud

This paper examines the Securities and Exchange Commission’s (SEC) penalties of specifically accounting and financial related frauds. The paper analyzes whether the punishments imposed on companies and individuals appear to be harsh enough compared to the crimes committed. The following topics are analyzed: the SEC’s policy of “neither admit nor deny”, accountants’ suspensions, and disgorgement and civil penalties. The discussion includes information on the SEC’s current and proposed rules and procedures regarding these topics. A small sample of data was gathered on individuals and companies related to fraud cases from the SEC’s Accounting and Auditing Enforcement Releases (AAER) database and the results are included in the analysis. The fourth quarter of 2010 was chosen as the time period to begin the collection of data after a brief examination of audit suspension periods showed that, on average, the periods ranged from three to seven years. The eight cases that were chosen were related to the first eight releases from the fourth quarter of 2010. The final section of the paper examines current limitations and impediments to the SEC’s power that make successful and efficient prosecution more difficult