August 4, 2014

SEC Cracks Down with a SOX Internal Control Case

Alas, the long, slow plodding implementation of the Dodd-Frank Act can make us sometimes forget about the legislation that was implemented by the SEC in relatively short order − the Sarbanes-Oxley Act of 2002, and, in particular, the internal control provisions of SOX.  The SEC’s Division of Enforcement sent us a SOX reminder last week when the SEC announced partially settled administrative proceedings against the CEO and former CFO of a company for violating the SOX internal control and certification provisions. The SEC alleges that the CEO and former CFO represented in a management’s report on internal controls that the CEO participated in management’s assessment of the company’s internal controls, when he didn’t actually participate in the evaluation. Moreover, the CEO and former CFO were alleged to have each certified that they had disclosed all significant deficiencies in internal controls to the outside auditors, when they allegedly misled the auditors about their controls by withholding from the auditors information about inadequate inventory controls and improper accounting practices.  It is not too often in the years since SOX was enacted that we see these sort of standalone internal control/certifications cases, often times the charges on these points are a sideshow to a much bigger case about and accounting failure.

The Dark Side of Social Media

The SEC’s Office of Investor Education and Advocacy recently published an Investor Alert to warn investors that promoters may use social media channels to spread false and misleading information about stock, mostly penny stocks.  This of course is nothing new, given that the “pump and dump” is a tried and true market manipulation method that sleazy promoters love to utilize.  The difference with social media is the ability to reach larger numbers of people with minimum effort and at a relatively low cost.  The alert provides tips as to how to spot the red flags of a social media based investment fraud, but I have my own tip that I always tell my kids: “Just because it is on the internet doesn’t mean it is true.”

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Study Reveals Board & C-Suite Diversity Stats & Strategies

– Conflict Minerals Survey: Many Companies Unprepared

– Notes: PCAOB’s Meeting on Auditor’s Reporting Model

– Europe: Mandatory Auditor Rotation Moves One Step Closer

– SEC Whistleblower Office Makes Additional Award, Denies Others

– Dave Lynn