The Deal: SEC Initiatives May Lead to More Enforcement

NEW YORK (The Deal) -- Three new enforcement initiatives recently announced by the Securities and Exchange Commission are likely to lead to more enforcement actions regarding penny stocks and financial reporting, according to industry observers.

The new Financial Reporting and Audit Task Force, the Microcap Fraud Task Force and the Center for Risk Quantitative Analytics were all announced in a July 2 press statement.

"These initiatives build on the division's unmatched record of achievement and signal our increasingly proactive approach to identifying fraud," Andrew Ceresney, co-director of the SEC Enforcement Division, said in the statement. "By directing resources, skill and experience to high-impact areas, we will increase the potential for uncovering financial statement and microcap fraud early and bring more cases aimed at deterring these types of unlawful activity."

Perrie Weiner, co-chair of law firm DLA Piper's securities litigation practice, said that the new initiatives are likely to mean more lawsuits and other sanctions in the areas the commission is targeting.

"The SEC's latest enforcement initiatives inevitably will translate into more investigations and enforcement actions in the coming year in these three defined areas," Weiner said in an e-mail from the firm's Los Angeles office. "This is not something new or different from what the SEC currently has been looking into and investigating. But, by establishing essentially 3 new task forces that will be separately and independently accountable, you can bet there will be a significant uptick in SEC enforcement activity."

Elisha Frank, an assistant regional director in the SEC Miami office, will head up the Microcap Fraud Task Force, along with Michael Paley, a New York assistant regional director.

"We have had a lot of success with the existing units over the last two, two and a half years," she said. "This is an extension of that process."

The task force that Frank leads differs from the SEC's Microcap Fraud Working Group, which the SEC formed in 2008. The working group has proactively removed potential vehicles for pump-and-dump schemes from the market by suspending trading in the shares of nonactive but still registered shell companies. In March 2008, the group worked to freeze trading in 26 shells. In June 2010, it suspended trading in 17 shells. In May 2012, the working group suspended trading in 379 shells and on June 3, 2013, it suspended 61.