SEC Warns Auditors To Keep Things Strictly Professional

Fenwick’s securities enforcement co-chair Michael Dicke spoke with Law360 about the first auditor independence action the U.S. Securities and Exchange Commission (SEC) has brought over close personal relationships between auditors and client personnel.

The SEC recently announced more than $9 million in settlements with Ernst & Young in two enforcement actions centered on allegations that the firm failed to step in when one partner became good friends with the chief financial officer of a client, and another partner became romantically entangled with the chief accounting officer of a different client.

Dicke, who previously served as the associate regional director for enforcement in the SEC’s San Francisco regional office, said the size of the fines is likely connected to the scope of the issues the SEC found in its investigation.

“It’s absolutely clear that they bundled these cases together to announce them on one day for maximum impact, and to try to make the point that they’re not just picking on an isolated example at this particular firm,” Dicke told Law360.

Dicke noted that the SEC has been focused on auditors since the failures of WorldCom and Enron and the passage of the Sarbanes-Oxley Act in the early 2000s. In recent years, the agency appears to have increased its attention to potential problems at the Big Four.

Dicke said he wouldn't be surprised if the SEC brings more such cases in the future.

“Once they find one case where it shows that the culture of a firm may be contributing to overly aggressive behavior or lack of compliance, it causes the SEC enforcement officials to want to start digging more and putting resources into looking for other potential violations,” Dicke said. “That kind of feeds on itself.”

The full article is available through the Law360 website​ (subscription required).


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