- The Securities and Exchange Commission (SEC) penalized a former Domino’s Pizza accountant nearly $2 million for allegedly using his access to confidential company data to engage in insider trading during a five-year period.
- Bernard Compton, a Domino’s Pizza accountant from 2005 until 2021, allegedly traded options based on internal data before 12 of the company’s earnings announcements from 2015 until 2020, bagging illicit profits for himself and his family exceeding $960,000, the SEC said. Under a settlement, Compton agreed to pay a penalty of $1,921,394 while neither denying nor admitting to the SEC findings.
- “Compton allegedly accessed and reviewed Domino’s confidential data to prepare financial performance reports for senior management,” according to Joseph Sansone, chief of the SEC’s market abuse unit. “Using innovative analytical tools, SEC staff exposed the defendant’s repeated misuse of this inside information.”
The SEC, Wall Street’s watchdog, has highlighted in recent years its use of data analysis to sleuth out accounting fraud and other wrongdoing.
The SEC’s Enforcement Division since late 2020 has identified four cases of malfeasance under its EPS Initiative, using risk-based data analytics to uncover accounting violations, including improper earnings management that hides weak performance.
Rollins Inc., a global pest control company, agreed to pay $8 million to settle charges that it improperly altered its books in order to meet analysts’ consensus earnings estimates, according to an SEC announcement this month.
In the first quarter of 2016 and second quarter of 2017, Rollins illegitimately trimmed accounting reserves in order to round up reported earnings per share (EPS) to the next penny, the SEC.
“It is critical that our enforcement program have tremendous breadth, be nimble and penalize bad actors so we discourage misconduct before it happens,” SEC Chair Gary Gensler said in a November speech. “That means bringing cases that matter to our three-part mission — whether deceptive conduct in the private funds space, offering frauds, accounting frauds, insider trading, market manipulation, Foreign Corrupt Practices Act cases, reporting violations or fiduciary violations.”
Last year, during leadership changes in the SEC’s top job, its Enforcement Division and at the Public Company Accounting Oversight Board, accounting and auditing enforcement actions fell, according to a report by Cornerstone Research. The SEC initiated 32% fewer cases in 2021 than in 2020.
Still, the decline in initiated accounting and auditing actions during the first year of the Biden administration was smaller than the 42% decline during the first 12 months of the Trump administration in 2017, Cornerstone said.
Gensler was sworn in on April 17, 2021, and in June appointed Gurbir Grewal to serve as Enforcement Division director.
Describing the insider trading at Domino’s Pizza, the SEC said Compton spread his options trades among seven brokerage accounts belonging to himself and family members.
In addition to paying the penalty, Compton “agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies,” the agency said.