SEC Enforcement Director Calls Out Audit Committee Members

In an address to the AICPA National Conference, SEC Enforcement Director Robert Khuzami said that his Division will “carefully evaluate” the role of directors and audit committee members in financial fraud cases. He said that the Enforcement Division will investigate whether directors were “recklessly ignoring red flags” and conducting proper due diligence. He called for audit committee members to take an active role in accounting and audit issues. In other parts of his speech, Mr. Khuzami also described new prosecutorial tactics such as wiretapping and cooperation agreements. He also criticized hedge funds for using “insider trading as a business model.”

OUR TAKE: Mr. Khuzami is warning audit committee members that they may become individual defendants in financial fraud enforcement cases.

http://www.sec.gov/news/speech/2009/spch120809rsk.htm