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SEC Enforcement Director Linda Thomsen recently announced a surprising 14 percent jump in enforcement cases in fiscal 2007. As noted in this Bloomberg article, the 656 cases in fiscal 2007 represented the first increase in Enforcement’s new case tally in four years.

One contributing factor to the big increase in cases was options backdating, with 24 cases brought in 2007. Cases alleging improper financial disclosures (a category which includes options backdating cases) made up 33 percent of the 2007 total, up from 24 percent in 2006. 47 insider trading cases were brought in 2007, as compared to 46 such cases in 2006. Among these insider trading cases was one of the largest since the 1980s, involving employees at several investment banks. Cases against financial advisers and delinquent filers represented less of a share of total cases in 2007 as compared to 2006.

With Section 404 Deadline Fast Approaching, Chamber of Commerce Calls for Delay

Despite the SEC, PCAOB and COSO efforts to make the internal controls assessment process more manageable for smaller companies, the US Chamber of Commerce is calling for yet another one year delay in Section 404 implementation. The Chamber of Commerce is asking Congress to hold hearings on the issue. In this press release, Michael Ryan of the Chamber notes that their recently conducted survey of Section 404 costs demonstrates “why small companies complying for the first time with SOX 404 should not be the guinea pigs for the improved rules adopted by the SEC and the PCAOB.”

As recently as this past summer, the SEC has rebuffed attempts to push back the Section 404 implementation timetable. As it now stands for non-accelerated filers, management must begin providing its own internal control assessment in the annual report filed for the fiscal year ending on or after December 15, 2007, however an auditor’s internal control attestation is not required until the annual report filed for the fiscal year ending on or after December 15, 2008.

The Chamber of Commerce survey of smaller companies attempts to show that compliance costs are expected to be high for these issuers. Over half of the survey respondents with a public float of less than $75 million except costs to implement the management assessment portion of the requirement to exceed $200,000, while slightly less than half of the respondents expected implementation of the auditor attestation component to also exceed $200,000. Despite the “staged” implementation approach adopted by the SEC, over 80% of the non-accelerated filer respondents have already engaged an auditor as part of their preparations for rendering management’s assessment.

Not surprisingly, 79% of the respondents to the Chamber’s survey indicated that a delay in the compliance deadline for Section 404 would be helpful to their company.

Annual Reports: How to Create Them for an Online World

Tune in for Thursday’s webcast – “Annual Reports: How to Create Them for an Online World” – to learn how to create more effective – and more “usable” – annual reports. Too many companies continue to make the same mistakes with their online documents and put themselves at a disadvantage when soliciting votes, particularly if a third-party mounts a counter-solicitation or a “just vote no” campaign.

Broc makes this case in point: “For those companies doing voluntary e-proxy so far, the proxy materials they are posting are merely “dumb” PDFs. Not even a linked table of contents. These are far less usable than the HTML filings made on EDGAR. Why have we gone backwards in this age of interactive documents – particularly given the SEC’s push for interactive data? As one member emailed me, ‘I think it passes regulatory muster, but only barely?’”

– Dave Lynn