SEC targets financial accounting fraud

SEC Chairman Arthur Levitt named Charles Niemeier chief accountant of the division of enforcement and chief counsel of the division's new Financial Fraud Task Force.

"The creation of the Financial Fraud Task Force affirms in sprit and in fact that improving the quality of our financial reporting system is a top priority of this commission," Levitt said in a statement.

The SEC has investigated a number of technology companies during the past several years, prompting some to restate their balance sheets.

Last week, for example, AOL settled charges that it improperly booked marketing expenses as revenues. Without admitting or denying guilt, the online giant agreed to pay a $3.5 million fine and to restate its earnings.

Niemeier and associate director Paul Berger will lead the task force, comprising accountants and lawyers who will focus on financial reporting and accounting investigations.

The enforcement division of the SEC already initiates 90 to 100 financial accounting actions a year, representing about 20 percent of all the actions addressed by the commission.

"We hope that we can add more cases to that number," Berger said in an interview. "But it's not just about the numbers, it also is about the significance of the cases and the message that they send."

Accounting cases can be very complex because different industries often have different methods for counting revenue. The SEC said it hopes to cultivate investigators with specific expertise in various industries so they can spot violations more effectively and expedite enforcement.

In a speech at New York University earlier this month, Levitt aired his concerns on the state of financial accounting.

"Too many CFOs are being judged today not by how effectively they manage operations, but by how they manage (Wall) Street. Too many analysts are being judged not by how well they analyze a particular company, but by how well they assist in selling the latest deal. And too many auditors are being judged not just by how well they manage an audit, but by how well they cross-market their firm's non-audit services."

"This is all about integrity in the marketplace," Niemeier said in an interview, "and about how the public has financial information (from companies) that they can rely on."

"Today's environment is changing," he added. "I can't say that there were more or less violations in the past, but there are a number of instances that give us pause."

Niemeier noted the recent restatements of past earnings from companies, including MicroStrategy, AOL and CompUSA.

Generally, when a company has to restate earnings, an accounting violation occurred, he explained. "It doesn't mean that it was intentional, but it could have been, and that's what we want to address."