The SEC Had a Busy Week

Many companies do at least a little bit of earnings management and “window dressing.” If it is getting to be mid-to-late December and there is a sale that you have almost closed, or an expense that you’ll probably have to pay pretty soon, you will sit down and say “well, our year is almost over, do we want this sale (or expense) to count for this year, or next year?” The answer will depend on your particular situation, but often you will want to book revenue early and expenses late: You’ll rush to close the sale in December, and foot-drag on paying the expense until January, so that you can report higher income for this fiscal year. You want this year to look as good as possible; you’ll worry about next year later.

As an official matter, the US Securities and Exchange Commission frowns upon this sort of thing; there are rules and enforcement actions. But the SEC’s fiscal year ends on Sept. 30 and, let me tell you, there sure were a lot of high-dollar enforcement actions last week. “Wall Street’s top regulator on Friday brought in $218 million in fines, roughly equal to 10% of its latest annual budget,” counts the Wall Street Journal. I count seven enforcement actions, against 16 firms, just on Friday, plus five more on Thursday.1 Could any of those cases have waited until Monday? Well. Now is a different fiscal year! You want to meet your earnings expectations.