New Data and Analytical Tools Increase the SEC’s Enforcement Reach

September 21st, 2014

 

We’ll give the moral to this story first:  The SEC is using XBRL and other available data to increase its enforcement initiatives.  You cannot control the SEC, but you can control if your XBRL data is catching unwanted SEC attention.  RDG Filings can ensure that your XBRL filings are held to the highest standards available anywhere and will not raise flags at the SEC due to poorly structured data.

Recently the SEC conducted an unprecedented investigation into violations by individuals and companies of securities laws that require corporate officers, directors and major shareholders to disclose their transactions in company stock.*

As the law firm McGuire Woods described it, the scope of this investigation was beyond anything the SEC had conducted in the past.  And the firm Morgan Lewis said that this “sweep signals a new level of scrutiny by the SEC of a filing requirement that, to date, has been largely immune from aggressive enforcement actions.”

The SEC said that it had used “quantitative data sources and ranking algorithms” to detect these violations that would like have gone unnoticed prior to the availability of these new sources of data and the technology to analyze that data.  Morgan Lewis predicts that the “existence of these quantitative tools alone suggests that more of these types of actions may be forthcoming from the SEC.”

This aggressive investigation is evidence that since the establishment of its Center for Risk and Quantitative Analytics in July 2013, the SEC’s Enforcement Division has increased its use of data analytics to identify potential violations.

These types of increase enforcement mechanisms are not a surprise.  In October of 2013, Mary Jo White explained that the SEC would be adopting the “Broken Windows” theory to crime fighting and prevention.  While they will remain focused on the big crimes, they would use newly available data and technology to more strictly enforce the smaller violations.

Admitting that the SEC has limited resources, and cannot actually be everywhere at once, she said that the SEC would be leveraging “new data tools and other force multipliers” to enhance and expand its coverage.  She wants the SEC to “strive to be that kind of cop – to be the agency that covers the entire neighborhood and pursues every level of violation,” and she said that they would be “harnessing the power of our enhanced technological capabilities… to spot fraud early on.”

Chairperson White concluded that it is the SEC’s aim “to create an environment where you think we are everywhere – using collaborative efforts, whistleblowers and computer technology to expand our reach… and ensuring that even the small violations face consequences.”

Chairperson White’s head enforcement chief, Andrew Ceresney, echoed and expanded on those sentiments in May of 2014.  Ceresny said that the SEC had been “focused on using technology to improve our ability to detect and investigate fraud,” and that with “proliferation of big data, we need to better harness technology in order to keep up with wrongdoers.”

More specifically, Ceresny said that the Center for Quantitative and Risk Analytics is helping “develop technologies to analyze trading and other types of data available to us from a wide variety of venues.”  He added that it is “critical that we continue to develop tools that mine these massive data sources for possible violations.  This data is a rich source of information for us and we need to take advantage of it.”

To repeat the moral to this story:  The SEC is using XBRL and other available data to increase its enforcement initiatives.  RDG Filings XBRL Quality Assurance Services will ensure that your XBRL data will not raise unwarranted flags at the SEC.  RDG will provide you with an independent, 3rd party review of your XBRL code, and our QA team of expert CPAs will ensure that your XBRL is not simply SEC Compliant, but that it satisfies the most up-to-date and strictest recommendations from the FASB, the AICPA, and the XBRL.US.  Contact us for more information.

Feel free to contact me any time.

Stewart Walker – SVP, Director of Sales

415.643.6017

*RDG Filings offers an excellent, cost effective, and user-friendly, web-based tool for the creation and submission of Section 16 Ownership Forms 3, 4, & 5.  Please contact us for more information.