Does the SEC Overstate its Numbers to Appear Tough on Wall St? This Law professor Thinks So

One of the most important duties of the Securities and Exchange Commission is that of looking into the bookkeeping and accounting of major public companies. But if a certain law professor is to be believed, the regulator may be using some fuzzy math of its own.

Many defense attorneys claim that the SEC’s push for more enforcement actions in the month of September is an attempt to beat the previous year’s tally. September being the last month of the fiscal year, this has always been the time when the SEC rolls out more enforcement actions than average.

But this has been an open secret and is widely considered harmless number padding. Urska Velikonja, law professor at Emory University, has studied the enforcement statistics published by the regulator each year and has concluded that the numbers mislead the public with regard to the effectiveness of the regulator’s actions while policing the financial sector.

Velikonja believes that the statistics need to be accurate since they are presented to the press and discussed Congress. She believes that the numbers put out by the commission are inflated in a number of ways. Multiple actions against the same people, for example, were counted multiple times. Cases against companies were counted separately from the cases against the same companies’ executives. This means that there is are substantial number of cases reported that do not require any investigation at all. She is about to publish her work in the Cornell Law Review next year.

Over 15 years, through the fiscal year of 2014, Velikonja has analyzed over 9,679 SEC enforcement actions. She was able to show that the cases reported in September were more than double the average of the other eleven months of the year.

While experts agree that the SEC, like any other organization, may want the number by which its performance is measured to look as strong as possible, the professor’s study shows that there is serious double counting while reporting numbers at the commission.

The recent statistics show that the number of enforcement actions by the SEC is up 50% in 2014 from 2000. However, when derivative cases that were tied to a single investigation were removed, the number of original cases pursued by the SEC appeared to be flat since 2002. According to the paper, somewhere between 23% and 34% of enforcement actions reported had already been counted at least once.

While the SEC Enforcement Director said the study was still “under review,” Velikonja believes that the agency is under pressure to seek more money each year from US lawmakers. State statutes force many government agencies to regularly impress with performance numbers to avoid budget cuts.

Leave a Reply

Your email address will not be published. Required fields are marked *