June 12, 2013
Structural Biases Towards Insider Trading Prosecutions At The SEC
Posted by David Zaring

Mary Jo White has vowed to bring more financial fraud cases as the SEC Chair, and Peter Henning has a nice column outlining the ways she might do so.  Policing accounting misstatements and the like often strike your average outside observer as more noble work than insider trading cases.  But:

The number of corporate accounting cases at the Securities and Exchange Commission has dropped to its lowest level in a decade, with only 79 such cases filed in the most recent fiscal year.

Over at Corp Counsel, Broc Romanek has an explanation for the decline:

From the Staff's perspective, financial fraud cases are a real bear. They chew up a lot of resources and require special expertise as an accounting background is necessary for some members of the investigatory team. Unlike insider trader cases - which often can be a slam dunk - financial fraud cases typically take years to bring, rather than months. And since the SEC tends to be graded - by Congress and the media - by how many cases it brings, financial fraud cases are mainly a lot of risk and little reward for the agency. So it will be interesting to see if the SEC's approach does change and how it goes about pulling it off...

Plausible, but unfortunate.  The IRS devotes a lot of its resources to auditing the most sophisticated filers; you have to wonder whether the SEC wouldn't be well served to take a similar sort of focus.

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