15 Sep 23

SEC Targeting of Auditors, Attorneys and Other Gatekeepers

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Last Updated on: 18th September 2023, 06:13 pm

SEC Crackdown on Auditors, Lawyers, and Other Gatekeepers: What’s Going On?

Lately, there’s been a lot of buzz about the Securities and Exchange Commission (SEC) coming down hard on auditors, lawyers, and other financial professionals who are supposed to keep companies in check. As someone who follows this stuff, let me break down what’s happening and why it matters.

The SEC’s Focus on “Gatekeepers”

First, what does the SEC mean by “gatekeepers”? Basically, these are independent watchdogs who are supposed to verify that companies are playing by the rules. This includes auditors who check companies’ financial statements, lawyers who give legal advice, and credit rating agencies who assess how risky a company’s debt is.

The SEC thinks these gatekeepers haven’t been doing their jobs. After various accounting scandals like Enron, it became clear that some auditors totally dropped the ball. And lawyers didn’t always force companies to disclose everything they should have. So the SEC decided to crack down to try to keep gatekeepers honest going forward.

How the SEC Is Punishing Gatekeepers

The SEC has brought dozens of cases against auditors recently. For example, Deloitte got fined $20 million in 2020 for messing up an audit. And Ernst & Young paid $50 million in 2018 to settle charges of fudging audit documents.

It’s not just auditors in the hot seat. Big law firms like O’Melveny & Myers have also been fined millions for allegedly helping mislead investors. The SEC has made it clear that lawyers could lose their licenses if they don’t speak up about misconduct.

Why the SEC Is Targeting Gatekeepers

The SEC gives a few reasons for the crackdown:

  • Deter gatekeepers from getting lazy or unethical
  • Hold gatekeepers accountable for doing their jobs
  • Protect investors by preventing fraud earlier
  • Restore trust in financial reporting

By coming down hard on gatekeepers, the SEC hopes it can force them to be more vigilant in spotting issues before they blow up into huge scandals.

Concerns About the Crackdown

Some worry the SEC is overdoing it. They argue:

  • Penalties are disproportionate to auditors’ actions
  • It could discourage good professionals from becoming auditors
  • Standards of conduct aren’t clear enough

There are fair concerns here. But the SEC would likely say it’s just holding gatekeepers to their existing duties – not punishing them for new standards.

What’s Next for Gatekeepers

The SEC has signaled this is the new normal. Some areas where we may see more enforcement:

  • Audits of crypto and fintech companies
  • Oversight of ESG disclosures
  • Scrutiny of SPAC deals

The days of gatekeepers getting off easy for lapses are probably over. This controversy will continue as the SEC tries to walk the line between tough oversight and overreach.

Let me know if you have any other questions! I’m always happy to chat more about SEC enforcement issues.