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 SEC Central
by Charles Hecht  • 212.490.3232

CHARLES HECHT is Principal of New York-based Hecht & Associates, P.C. He has over 30 years' experience in securities and commodities transactional work, litigation and arbitration. He has provided expert testimony before the IRS with respect to the impact of proposed tax regulations on preferred stock hedged with commodity futures and options. He has authored articles on mergers and acquisitions, earn-outs, commodities, hedging, derivatives, and arbitration jurisdiction and damages.


 Have Private Securities Fraud Actions Against Outside Auditors Been Eliminated by Janus Capital?
In June 2011, the U.S. Supreme Court issued its much-anticipated decision in Janus Capital Group, Inc. v. First Derivatives Traders, which even further restricted private securities fraud actions.  Based on an analysis of the facts and the wording of the majority opinion, it is arguable that “the wicked witch is dead” as to auditors of public companies.

When Ignorance Is Not Bliss
CFOs and CEOs may very well be subject to substantial monetary penalties for their company's violation of Section 304 of the Sarbanes-Oxley Act, even when they are innocent of any wrongdoing in the preparation of false and misleading financial statements.

An Update on Auditors' Defenses in the Madoff Feeder Fund Cases
It appears that auditors generally need not be concerned about having violated federal securities laws. 

New SEC Rules on Opinions
On June 30, 2009 the Division of Corporation Finance updated Topic 4200 to its Financial Reporting Manual dealing with qualified opinions. This supplements Regulation S-X. It will apply to the filing of all financial statements containing an auditor's report after June 30, 3009. There are a number of new changes.

Madoff Mania and the Financial Professional
What is the exposure of financial professionals involved in the due diligence process, or the decision to maintain an investment in a hedge fund or feeder fund involved in the Madoff ponzi scheme? What is the exposure of the hedge fund’s outside auditor?

The Financial Professional's Need to Fight for Home Court Advantage
As any sports fan knows, home court advantage is very important. It is even more important in class action litigation affecting financial professionals.

Red Flag for a Basis for Imposing Liability on Financial Professionals
The danger of recognizing but failing to act on warning signs has been a recurring theme in my articles. A recent case illustrates how creative pleading involving red flags permitted an otherwise vague complaint to proceed.

The Effect of the Recent Tellabs Inc. Decision on Financial Professionals
Defendants in securities class action suits almost always include financial professionals. Discouraging such suits is of paramount importance. If you are sued, the best time to get out is early. The federal circuits were divided on what was the appropriate pleading standard for the scienter element of Section 10b and Rule 10(b)-5.

Fraud Protection With Automatic Trading Plans
An automatic trading plan can also be critical in defending suits alleging fraud under SEC Rule 10b-5.

Liability Control and Effective Governance at the Big Four
The evidence suggests that the quasi-franchise structure the Big Four and other global accounting firms have adopted can make it quite difficult to assert and maintain effective controls over far-flung accounting practices around the world.

An Accountant's Duty to Correct
Recently the United States Court of Appeals rendered an important decision concerning when an accounting firm can be primarily liable for securities fraud for not correcting a prior opinion.

The Securities Anti-Class Action Trend
There appears to be a long-term trend emerging on how courts approach plaintiff-side class action securities suits. It is becoming more difficult to bring class actions and individual private suits based upon the alleged wrongful conduct of public companies and other participants in the securities markets.

Audit Committee Procedures
Having set up an audit committee as either a new company or to comply with Sarbanes-Oxley, what do you do next? It is not enough merely to have an audit committee. You must also adopt procedures and internal controls to ensure the audit committee functions effectively.

Lawyers' Liability for Financial Fraud
With one exception, no specific rules of professional conduct for attorneys practicing before the SEC have been adopted. Rather, the SEC has filed enforcement actions, and an analysis of those enforcement actions is critical in determining the possible legal exposure of attorneys, especially in-house counsel, for allegedly participating in financial fraud.

New Audit-Tax Independence Rule
Recently, the PCAOB adopted a rule that states that a public accounting firm is not independent of its audit clients if the firm provides tax services to certain members of management who serve in financial reporting roles.

Supreme Court Resolves 'Holders' Conflict Among Circuits
The Securities Litigation Uniform Standards Act (SLUSA) preempts state law holder class-action claims, according to a U.S. Supreme Court decision. The resolution of this conflict is a victory for prospective or actual defendants in securities class actions.

Review: Recent Class-Action Trends and Issues
Class-action trends and issues should get the attention of financial professionals, since approximately two-thirds of the securities class-actions filed in the federal courts in the last three years involved an accusation of financial statement fraud.

The Landscape Changes Again
This month the five commissioners of the Securities and Exchange Commission said that their recent enforcement actions have not given a clear public view of when and how the SEC will impose corporate penalties.

To Fight or Not to Fight the SEC?
Armed with an arsenal of new punitive remedies and using the threats of even harsher remedial measures, the risks of fighting the Securities and Exchange Commission have increased greatly. It is now a totally new landscape and, in certain instances, the SEC's staff is sending mixed messages to the investment professionals and their attorneys.

The Current Status of Financial Professional Liability
A recent district court opinion summarizes the current status of the key principles relating to what must be alleged to state a valid claim against an outside accounting firm under the Private Securities Law Reform Act of 1995.

Read Between the Lines: The SEC On Accounting Issues
Staff accountants at the Securities and Exchange Commission have been speaking out on various accounting issues. A review of the speeches helps to understand the staff's concerns. It is also a way of educating financial professionals of new rules and staff interpretations.

SEC Provides FAQs for Financial Professionals
The Frequently Asked Questions posted by the Securities and Exchange Commission can be very helpful to financial professionals, especially those on audit committees.

The SEC's New Perspective Toward Auditing Firms
A legal analysis of the SEC's view on recent post-Sarbanes-Oxley themes and how they relate to accounting professionals.

The New Terrain
Financial professionals who understand Auditing Standard No. 2 will "survive and thrive"

New Form 8-K Requirements
The SEC recently adopted a number of new requirements that directly affect financial professionals who are employed by or do outside audit work for public companies.

So You Want to Be a Director?
As a direct result of the Sarbanes-Oxley Act, it is now a requirement that at least one member of the audit committee of the board of directors be a qualified financial professional.

PCAOB's Interim Rules
The Public Company Accounting Oversight Board has proposed new procedures that would be required prior to the mandatory compliance deadline.

SEC v. KPMG: An Interesting Twist
Can a firm rely on the SEC's advice? Auditors may learn a lesson or two from KPMG's "mistake."

SEC v. KPMG LLP: Phase Two
Shortly after the initial SEC Xerox-KPMG complaint, KPMG's relationship partner for the Xerox engagement in 1999 and 2000 moved to dismiss the complaint for failure to state a claim against him. Attorney Charles Hecht offers an analysis of this motion to dismiss.

Who Is Responsible?
The audit fails to discover a massive fraud -- which accountant takes the blame? A recent case decision illustrates which accounting professionals are legally responsible to the shareholders.

The Audit Committee Financial Expert
Although Sarbanes-Oxley Section 407 is framed as a disclosure rule, pressure from shareholders will require many boards to ensure that a financial expert is a member of the audit committee.

To Serve or Not to Serve, That Is the Question
Sarbanes-Oxley has redefined the rules of serving on an audit committee, turning it from a cozy, post-retirement gig to an authoritative position with specified duties and responsibilities.

SEC v. KPMG LLP, et al.
You heard the news that the SEC has charged KPMG with accounting fraud. Get all the details from our legal expert, including an analysis of the SEC complaint and it compares to the Enron/Andersen scandal.

SOA and the SEC's New Disclosure Rule for Use of Non-GAAP Financial Measures
Financial professionals who work for public companies, as well as the outside auditors and members of the audit committee, must be familiar with the SEC's new disclosure rules for use of non-GAAP financial measures.

The Liability of Financial Professionals
Sarbanes-Oxley and the "Reliance on Others Defense"
Defining "Non-Audit" Services: The Audit Committee's Role
The Courts v. Current Public Sentiment
Audit Committee and Management Disclosure Requirements of the Sarbanes-Oxley Act
Four Significant Accounting Changes of the Sarbanes-Oxley Act
The SEC's New Weapon: Section 10A
The Application of Critical Accounting Policies in the MD&A
Accounting Division Targets Goals

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