A public accounting firm and three of its partners settled SEC charges for improper professional conduct while competing for selection as an independent auditor for a U.S. publicly traded company. The Chief Accounting Officer ("CAO") of the issuer also settled charges brought against him for his conduct in the selection process.
According to the Order, the partners solicited confidential information from the issuer's Chief Accounting Officer ("CAO") during the Request for Proposal process to secure the audit engagement. The SEC stated that the accounting firm's leadership should have known that the conduct, which ultimately resulted in the firm's selection, was improper. The SEC found that the misconduct in connection with the audit pursuit would cause a reasonable investor to conclude that the auditor was incapable of exercising objectivity and impartiality once the audit engagement began. Additionally, the SEC explained that the misconduct meant that the accounting firm inaccurately represented itself as independent in audit reports, which were incorporated into the issuer's public filings.
As a result, the SEC determined that the accounting firm, due to the partners' conduct, violated Rule 2-02(b)(1) ("Accountants Reports and Attestation Reports") of Regulation S-X ("Financial Reports"), which in turn led to the issuer's violations of reporting requirements under Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 and 14a-9 thereunder. The accounting firm also violated the Public Company Accounting Oversight Board's Rule 3526(a) ("Ethics and Independence") and, along with the partners, Section 4C(a)(2) ("Appearance and Practice before the Commission") of the Exchange Act and Rule 102(e)(1)(ii) ("Conduct") of the SEC Rules of Practice. To settle the charges, the partners agreed to (i) cease and desist from future violations, (ii) suspensions of varying lengths with a potential for reinstatement and (iii) civil money penalties that collectively total $90,000. The accounting firm agreed to (i) a censure, (ii) a set of remedial undertakings and (iii) a $10 million civil money penalty.
In a related matter, the CAO of the above-mentioned issuer settled SEC charges for providing the audit partners with confidential information before the Request for Proposal process and for "unilaterally" providing such information without the knowledge or approval of the issuer's Audit Committee. As a result, the CAO caused the issuer's violations enumerated above and violated Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the SEC Rules of Practice. To settle the charges, the CAO agreed to (i) cease and desist from future violations, (ii) a suspension of two years after which he may reapply for reinstatement and (iii) a $51,000 civil money penalty.
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