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SEC’s increasing scrutiny trend bodes well for anti-fraud professionals

The U.S. Securities and Exchange Commission, like so many agencies, has weathered COVID-19 and budget restraints. But the authors’ research has shown that the SEC chairman is staunchly serious about increasing enforcement activities and reforming capital markets, which is good news for anti-fraud professionals.

On July 19, 2021, the U.S. Securities and Exchange Commission (SEC) alleged that Aron Govil defrauded investors of over $7 million through a scheme using investor funds in two companies he controlled, Cemtrex Inc. and Telidyne Inc., for personal expenses. The SEC also alleged that Govil engaged in scalping, insider trading and failing to file required disclosures with the SEC.

Combining two ripe areas for fraud, Govil recruited investors to Telidyne that had created “Teli App,” a mobile application he claimed would allow users to trade cryptocurrency. Govil also promoted Teli App as a COVID-19 detection app. The enforcement division found both claims to be false and assessed a civil penalty of $620,000. (See “SEC Files Charges in Multi-Million Dollar Fraud Involving Two Companies,” SEC, July 19, 2021.)

The Govil case is just one example of recent increased SEC enforcement cases we’ve analyzed in a study we conducted. We hand-collected scores of the SEC’s Accounting and Auditing Enforcement Releases (AAER) for fiscal years ending 2021 to 2023 — the first years of Chairman Gary Gensler’s time at the SEC. (AAERs are financial-reporting enforcement actions concerning civil lawsuits brought by the SEC in federal court, and notices and orders concerning the institution and/or settlement of administrative proceedings.)

We documented a 50% decline in the number of AAERs from 2019 to 2021 — the tenure of then SEC Chairman Jay Clayton. (See “SEC Accounting and Auditing Enforcement Activity, Year in Review: FY 2022.”) However, despite tight budgetary restrictions, we found that Gensler’s time at the SEC has brought an increase of approximately 50% in AAERs from 2021 to 2023. This trend demonstrates Gensler’s seriousness to increase SEC enforcement activities and his tough attitude in reforming capital markets.

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