(The news featured below is a selection from the news covered in the Federal Securities Law Reporter.)

Panels Discusses Enforcement, Accounting Developments 

The past year has seen a substantial increase in cases against the Commission involving its rules. SEC Solicitor Jacob Stillman, speaking at a recent Practising Law Institute conference, referred to the Chamber of Commerce challenge to the SEC's fund governance rules, a challenge to the hedge fund investment adviser registration rules and a challenge to the SEC's exemptive amendments under Exchange Act Section 16(b). Mr. Stillman said it is too soon to determine whether this is a trend or whether it will die down after these cases are resolved.

During a panel discussion on accounting developments, the SEC's acting chief accountant, Scott Taub, reminded registrants that they do not have to wait for new rules or standards to improve their financial reporting. They should disclose whatever will help investors understand what has happened at the company, he said, and they should use plain English to do so. Mr. Taub also noted that even if a company's accounting follows generally accepted accounting principles it may still need additional disclosure to ensure that investors understand it.

Mr. Taub talked about the SEC's report on off-balance sheet arrangements which he said had several goals, including the focus on objectives-oriented standards, the reduction in accounting-motivated standards, improvements in disclosure and a focus on communication, not just compliance. Everybody has a different meaning when it comes to complexity, he said. For preparers, it is the difficulty in figuring out what to do, and for investors it is trying to figure out what has been done.

Mr. Taub touched on the staff roadmap for the elimination of the U.S. GAAP reconciliation requirement and convergence with international financial reporting standards. The roadmap has a target date of 2009, but Mr. Taub said it is possible to get there sooner if things go well. The staff will review filings that include IFRS in the normal course of its operations, he said.

Mr. Taub mentioned the planned roundtable on internal control reporting scheduled for May 10, 2006, and reminded registrants to focus on risk-driven controls. If fraud is the problem, Mr. Taub maintained that there are controls for management fraud. Those controls must be identified and evaluated for effectiveness, he said.

Former Commissioner Edward Fleischman, now senior counsel at Linklaters, asked about accountants' concerns that the SEC will second-guess their judgment. Mr. Taub said the staff recognizes that there may be many answers to an accounting question and that judgment is necessary. He urged registrants to come to the staff with questions. It is better to get it right the first time, he said. Mr. Taub assured accountants that the staff is not trying to override their judgments with its own.

Enforcement

Although the last fiscal year was a year of transition, with a new chairman and a new director of enforcement, the Enforcement Division brought 636 cases, 29 percent of which related to issuer reporting and disclosure problems. Broker-dealers and investment advisers each accounted for about 15 percent of the cases. Delinquent filings made up nine percent of the cases, insider trading eight percent and market manipulation seven percent. In fiscal 2005 the staff ordered $3.1 billion in disgorgements and penalties, about 72 percent of which has been collected. About $600 million was distributed to investors. Deputy Director Peter Bresnan said the staff is committed to doing better.

Deputy Director Walter Ricciardi addressed the controversial area of waiving attorney-client privilege. He reminded the audience that lawyers represent the entity, not individuals in these matters and that it may be in the entity's best interest to waive the privilege. Mr. Ricciardi added that the SEC does not ask companies to waive the privilege. As for the size of penalties in recent years, Mr. Ricciardi attributed the increase to the Fair Funds provision and the fact that money now goes to harmed investors instead of the Treasury.

Deputy Chief Litigation Counsel Mark Adler said the SEC is prepared to litigate cases through trials and is getting good results. Former SEC commissioner Roberta Karmel, a professor at Brooklyn Law School, asked if a recent decision where the concurring partner was found to have aided and abetted the fraud rather than being held primarily liable was the result sought by the SEC. Mr. Adler said no, the SEC took a stronger position on that issue. Professor Karmel asked if the SEC would take that position in the future and he again said no. The staff will approach the liability question on a case-by-case basis, he said.