There’s been a ton of news coming out of the Securities and Exchange Commission in the past 48 hours – so I thought we would briefly recap it here in an end of the week Friday afternoon post:
CSC Settles SEC Accounting Fraud Investigation for $190 Million.
Computer Sciences Corporation has agreed to pay a $190 million penalty to resolve an investigation into manipulation of financial results regarding a large, multi-billion dollar contract. The company learned that it could not meet certain deadlines on the contract and would take a large hit on earnings as a result. In order to avoid the hit to the financial statement, CSC artificially increased its profits and then delayed recognition of the revenue loss by basing its models on proposed contract amendments, which were rejected, rather than the actual contract.
SEC Chair Mary Jo White recused herself because of the involvement of her husband, a Cravath attorney. This created a 2-2 split between the Commission’s two Democrats and two Republicans. After a deal was seemingly reached last year, the resolution was held up by the split in the Commissioners according to reports.
SEC Investigates Activist Investors for Alliances.
The enforcement division is investigating multiple investors to determine whether they coordinated efforts without filing disclosures. Investors who agree to jointly vote securities are required to disclose such arrangements and declare a group if they own at least 5% of a company’s shares of stock or are soliciting other shareholder votes.
Activist investor funds are the purported target. This is part of the enforcement divisions effort to give broader scrutiny to trading disclosures. The first results of this move were seen in March when eight corporate insiders were charged with failing to update ownership filings.
SEC Files Lawsuit in Fake Avon Bid.
The SEC filed a lawsuit against the individual responsible for using the Edgar database to submit fraudulent takeover bids to manipulate the stock price of Avon and Rocky Mountain Chocolate Factory. The SEC got a court order to freeze about $2 million in assets in the individual’s trading accounts.
Manipulation of the Edgar database, used by the SEC to distribute filings made to the government agency, has been a hot topic following the disclosure of the bogus Avon bid. Avon stock jumped 20% prior to the company’s announcement that the offer was a hoax. The SEC only requires a notary public to do a signature verification on the Edgar application.
SEC Investigates ALJ Bias.
Following criticism about the home court advantage the Securities and Exchange Commission receives in its in-house administrative courts, the SEC has asked an administrative law judge to submit an affidavit concerning any pressure toward himself or other ALJs to rule in the agency’s favor. The administrative law judge questioned presided over the Timbervest securities fraud case and according to Timbervest’s attorney, has a 51-0 track record in favor of the SEC.
Senator Warren Slams SEC Chair White.
Earlier this week, Senator Elizabeth Warren called SEC Chief Mary Jo White’s reign as the top securities regulator disappointing. In a speech to the SEC Historical Society yesterday, White recapped her record without mentioning the criticism. A copy of the transcript is available on the SEC website.
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