Schapiro Aims to Expand Accounting Oversight of Broker-Dealers

The U.S. Securities and Exchange Commission wants to enlist the accounting industry to boost oversight of broker-dealers to help restore investors’ trust in financial markets, SEC Chairman Mary Schapiro said.

The agency is looking to “leverage the profession” by updating a 30-year-old broker-dealer custody rule that requires auditors of firms that control client assets to give assurance that reported numbers are accurate, Schapiro said today in a speech at an American Institute of Certified Public Accountants conference in Washington.

The SEC is expanding scrutiny of broker-dealers after investors lost billions of dollars in a Ponzi scheme conducted by Bernard Madoff, whose New York-based investment firm also acted as a custodian. The agency last December voted to require that money managers who hold customer cash and securities be subjected to surprise inspections.

“We continue to demonstrate our willingness to prosecute those who betray the trust of the public markets,” Schapiro said. “But bringing actions after the fact is no substitute for full and honest disclosure at the outset. Enforcement actions are cold comfort for investors who lost their savings after relying on misrepresentations or half-truths.”

Madoff, 72, who was arrested in December 2008 after confessing to the Ponzi scheme, is serving a 150-year prison sentence for defrauding investors.

The accounting industry will play a crucial role in helping investors regain confidence in the wake of Madoff’s scheme and the 2008 financial crisis, said Schapiro, who urged auditors to push for accuracy and clarity in reporting.

“Our markets depend on confident investors -- and their confidence rests in large part in your hands,” she said. “The SEC and other agencies can increase the confidence investors bring to our financial markets, but our efforts will succeed only if those investors believe the numbers that you write on the bottom line.”

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