SEC San Francisco Chief Fagel Says Offshore Accounting Fraud Is Rising

Date: Thursday, June 3, 2010
Author: Bloomberg

Securities and Exchange Commission investigators are increasing scrutiny of U.S. companies’ offshore operations amid concern that accounting controls may be too weak, the head of the agency’s San Francisco office said.

“Some of the old-fashioned revenue recognition and accounting fraud issues that we used to see here, we’re seeing in their offshore operations,” Marc J. Fagel said in an interview in San Francisco yesterday. “That’s a big theme.”

Fagel’s office oversees the Pacific Northwest and Northern California, including Silicon Valley, home to more technology jobs than anywhere else in the country. Fagel joined the SEC’s enforcement division in 1997, and helped lead probes of companies including Brocade Communications Systems Inc. and KLA- Tencor Corp. He was promoted to regional director in 2008.

While the region’s companies halted improper practices in recent years, such as misdating sales contracts to inflate quarterly revenue, similar misconduct is cropping up in overseas offices, Fagel said, without naming the firms.

“They’re not doing that so much in San Jose, but they may have a Hong Kong office where they haven’t figured out they’re doing that, or that it’s a problem,” he said. The SEC’s concern is growing as U.S. companies acquire businesses overseas or move their offices abroad, he added.

Fagel, 43, supervises about 100 attorneys, examiners and support staff. In addition to Northern California, his office focuses on Oregon, Washington, Idaho, Montana and Alaska, according to the agency’s Web site.

He plans to add as many as 12 professionals including attorneys and accountants this year to the enforcement and examination staff. To boost oversight of the $14 trillion fund industry after several cases of fraud, including Bernard Madoff’s Ponzi scheme, the SEC is seeking recruits with expertise in hedge funds and complex financial instruments.

Fagel said some attorneys in San Francisco will target insider trading, foreign bribery, asset management misconduct and new and emerging products like derivatives. Having units targeting specific types of fraud and bringing in new talent with expertise will help the agency become more proactive in fighting financial fraud, Fagel said.

Specialists allow the agency to pursue cases with broader implications on an industry or the market, Fagel said.