Forgive me for chastising a government agency, but I find it ironic that articles have been coming out lately on the ten year “anniversary” of the fall of Enron.  To me, what is more ironic is that in the last few years the SEC has failed to bring any major — headline worthy –accounting fraud cases.  Maybe I am missing something but there is no doubt that the SEC has focused on the low-hanging fruit accounting fraud cases, and ignored (or failed to detect or investigate) more significant cases.

This could be a product of the reorganization of the enforcement division, which is so regularly touted by SEC officials. While the SEC points to the reorganization especially in the FCPA enforcement area, it may be forgetting to dedicate itself to its core mission — accounting accuracy and financial controls for public companies.

Sarbanes-Oxley was a revolutionary law for purposes of publicly held companies and the accounting/auditing profession.  Section 404 of the Act imposed new requirements on publicly-held companies and raised the regulatory profile of auditors.  Businesses have chaffed at the requirements of Section 404 of the Act, especially smaller public companies. 

Most significantly, Sarbanes-Oxley created a criminal offense targeting senior officers for the false certification of financial reports for public companies.  That provision was carefully crafted and modified by Senator Graham on Senate floor at the last second to provide some wiggle room for criminal liability. 

With these new requirements and tools in place, the SEC and federal prosecutors were supposed to be able to enforce the  overall accuracy of financial statements issued by public companies.  There were supposed to be no more World Com(s), Enron(s), and other catastrophic financial reporting frauds.

I am not so naive to think that Sarbanes-Oxley has been so effective that all public companies have ceased all fraudulent activity.  The SEC needs to right the enforcement effort by focusing on major accounting fraud cases — it is the expert agency in this area and needs to remain vigilant as a public policy matter.

The SEC continues to devote resources to the anti-corruption mission.  It is easy to set up a voluntary disclosure process for FCPA violations, demand that companies come in and report their own self-discovered violations, impose a government-designed settlement, and then issue a press release to demonstrate how successful the FCPA enforcement program is operating.  

In contrast, it is much  more difficult to identify, investigate and build case of accounting fraud againsta  public company.  It takes time and resources.  Prosecuting accounting fraud should be the SEC’s bread and butter.  The SEC needs to root out accounting fraud, comb and develop possible sources of such fraud, and monitor financial reporting of public companies.  These are — and should be — the SEC’s primary focus. 

For some reason, the SEC has veered off course.  It is important for the SEC to right its ship and start concentrating on its core mission.