Fraud Examination Notes 3.11.14
The Securities Act of 1933 came after Krueger case
The primary function of the SEC is to protect investors * Requires that publicly traded companies need to publish financial documents and other information * Audited financial statements came about later * They get reported to SEC through EDGAR * 10-K – annual report on financial information * 10-Q – quarterly report on financial information * 8-K – annual report on financial information plus other important information (mergers, change of auditors, etc.) * So much regulation b/c effects can lead to loss of faith in system, finances, etc. * Prevented insider trading * Prohibited manipulating market price of securities * Cannot steal funds from brokers * Cannot steal securities without registration from SEC * Disgorgement – return of any illegal profits through civil prosecution * Rule 10(b)5 – It shall be unlawful for any person directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or any facility of national securities exchange, * To employ any device, scheme or artifice to defraud, * To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading or * To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security * Litigation Release (LR) – 400 or 500 actions / year * AAERI * Vertical and horizontal analysis * Horizontal - % change in accounts from one period to another * Vertical – break down each account into % of that particular statement * Change