Types of SEC Whistleblower Cases: Accounting, Books and Records, and Disclosure Frauds
Accounting fraud (including financial statements), Books and Records fraud, and Disclosure fraud are some of the most prevalent types of SEC whistleblower case violations. They often involve the falsification, misstatement or omission of financial information.
Public companies and financial institutions must keep accurate books and records, and correct financial statements. When they disclose financial information to their customers or to the public in press releases, public filings, account statements, or other materials, they must do so truthfully and accurately. Depending on the circumstances, accounting, books and records, or disclosure fraud can overlap with public statement fraud. [Click here for more information about public statement fraud.]
False or misleading financial information can create an inaccurate impression of the actual results, viability, future expectancies, and/or performance of a company or its securities. It can deceive public shareholders of a company, people thinking about buying stock in a company, customers of broker dealers or other financial advisory firms, or other recipients of the information.
A related variant to this is auditing fraud. Generally speaking, a public company and its employees are not allowed to provide false or misleading information to the company’s auditors, lie to the company’s auditors, provide false or forged documents to the auditors, or hide information that the auditors ask for.
Accounting fraud, Books and Records fraud, Disclosure fraud, and Auditing fraud cases have been around for a long time. Starting in or about 2013, the SEC began placing a heightened emphasis on identifying accounting fraud and disclosure fraud. Some people have estimated that during the early years of the SEC whistleblower program, nearly 20% of all SEC whistleblower cases or tips related to these types of frauds.
Around the same time, the SEC formed its Financial Reporting and Audit (FRAud) Group, as part of its increasing efforts to identify and pursue securities law violations related to financial reporting and audit failures. To do this, the FRAud Group leveraged technology, such as its Corporate Issuer Risk Assessment (CIRA) tool. According to the SEC, the CIRA could analyze over 100 distinctive accounting methods and metrics, and identify potential red flags of suspicious behavior.
Another way the SEC increased its capabilities was through its SEC whistleblower program, which enables people to confidentially provide the SEC with information about these and other frauds. Such information, if provided according to the SEC whistleblower rules, can lead to the opening of an SEC whistleblower case.
Other Forms of Accounting Fraud and Disclosure Fraud
In addition to pursuing cases related to the fraudulent preparation of financial statements and the disclosure of financial information to investors, the SEC seeks to uncover and detect other areas within corporations that could be susceptible to fraudulent financial reporting, such as:
- financial statement restatements and revisions,
- internal supervisory or control violations,
- books and records fraud,
- loan impairment,
- inventory evaluation,
- corporate prospectuses,
- roadshow presentations,
- marketing materials,
- analyst/investor calls,
- false or undisclosed customer account information,
- and more.
Possible Individuals Who May Have Information Relevant to SEC Whistleblower Cases
Some types of individuals who might provide information leading to SEC whistleblower cases include, but are not limited to:
- public stakeholders and shareholders,
- corporate insiders (officers and employees),
- business counterparties,
- customers of broker dealers or other financial advisory firms,
- and others.
For more information on Accounting, Books and Records, and Disclosure frauds, click on the links below.
- Marijuana co. founder fined $12MM for false SEC filings, books and records violations, auditor fraud.
- Citigroup settles charges of overbilling for $18.3 million.
- SEC fines company $5 million for tax reporting violations.
- Citadel Securities fined $22.6MM for false disclosures regarding trade executions.