Bitcoin Prices Continue Volatile Surge Despite Increasing Regulatory Scrutiny

In recent days, Bitcoin prices have surged past $11,000 before dropping back to around $10,000. This represents a more than 1000% growth since the start of 2017. In the last month alone, the price has more than doubled. This surge follows the announcement by the CME Group, the world’s leading derivatives marketplace, to launch Bitcoin futures on December 18. CBOE Global Markets Inc. also intends to launch a Bitcoin futures soon. Both received a green light from the CFTC today, December 1, through the process of self-certification – a pledge that the products do not run afoul of the law. There are also rumors that NASDAQ will launch a futures contract based on Bitcoin in 2018.

Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange using cryptography to secure the transaction and verify the transfer of assets with no need for a bank or other middleman. It is one of many new virtual currencies. Many startups have attempted “Initial Coin Offerings” or ICOs to raise funds in an attempt to create a new virtual currency. Other startups have attempted to launch various platforms as exchanges or ways to utilize Bitcoin and similar virtual currencies.

The SEC, CFTC, and other regulators in the United States and around the world are taking an active role in regulating Bitcoin and other cryptocurrencies and bringing enforcement actions when necessary.

As early as 2013, the SEC’s office of Investor Education and Advocacy issued an investor alert on Ponzi schemes using virtual currencies. In July of this year, the SEC Division of Enforcement issued an investigative report “cautioning market participants that offers and sales of digital assets by ‘virtual’ organizations are subject to the requirements of the federal securities laws.” In March of 2017, the SEC rejected a bitcoin ETF on the basis that “significant markets for bitcoin are unregulated.” So far, no ETFs have been approved. In August, the SEC temporarily suspended the trading activity of three public companies that indicated they were likely to engage in an “initial coin offering” for a new digital currency. Earlier this month, the SEC Division of Enforcement issued a statement warning that celebrity endorsements of initial coin offerings and similar investments may be unlawful if they “do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.”

Since 2015, the CFTC has taken the position that it views Bitcoin and other virtual currencies as commodities under the Commodity Exchange Act. Coinflip operated a trading platform with put and call options for Bitcoins in 2014 but did not follow regulations under the Commodity Exchange Act. Coinflip agreed to a settlement with the CFTC. It was not subject to a fine but was required to cease and desist from violating the act as well as subject to additional undertakings. As part of its order, the CFTC for the first time found that Bitcoin and other virtual currencies are properly defined as commodities. Aitan Goelman, the CFTC’s Director of Enforcement, commented: “While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.” On October 4, 2017, the CFTC issued a “Primer on Virtual Currencies.” The primer warns of the extensive risk of fraud with virtual currencies and reaffirms the CFTC’s enforcement authority.

Bitcoin’s future is still uncertain. Goldman Sachs CEO Lloyd Blankfein tweeted in October that “Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.” Others have made up their mind. At a Barclay’s conference in September, J.P. Morgan’s Jaime Dimon called Bitcoin “a fraud worse than tulip bulbs.” A common critique of Bitcoin is that it is mostly used by tax evaders, money launders, and others wanting to avoid government scrutiny. Such secrecy may not last. The IRS recently won a court victory over Coindesk, one of the top Bitcoin exchanges, in a demand for a list of all Bitcoin users making transactions worth more than $20,000. The case is U.S. v. Coinbase, 17-01431, U.S. District Court, Northern District of California (San Francisco).

Companies utilizing virtual currencies may be using the money of the future, but they will face the regulators of today.

A GAAP-Happy Month in SEC Enforcement

In January, the SEC settled no fewer than seven enforcement proceedings with companies that involved alleged violations of generally accepted accounting principles (GAAP). While the sheer number of settlements would have been remarkable on its own, when examined individually, these proceedings reveal both emerging enforcement initiatives and recent historical trends in accounting-based actions. This article spotlights three particularly noteworthy observations from the first month of 2017.

  1. The Emergence of Non-GAAP Financial Measures

In 2016, the SEC placed growing emphasis on perceived abuses of non-GAAP financial measures under Regulation G and Item 10(e) of Regulation S-K. This included the Division of Corporation Finance’s (CorpFin) Compliance & Disclosure Interpretations in May and former Chair Mary Jo White’s speech before the International Corporate Governance Network in June. On January 18, 2007, the SEC settled its first enforcement action predicated on this alleged activity. Exchange Act Rel. No. 79823.

The SEC claimed specifically that MDC Partners, Inc., a publicly traded marketing firm, violated Item 10(e)(1)(i)(A) of Regulation S-K, which requires issuers disclosing non-GAAP financial measures to present “with equal or greater prominence” the most directly comparable GAAP-based financial measure or measures. According to the Order, MDC Partners’ quarterly earnings releases for 2013 and 2014 improperly emphasized EBITDA, EBITDA margin, and free cash flow—all non-GAAP benchmarks—without satisfying this prominence requirement. Moreover, the SEC alleged that CorpFin had raised this particular concern with the company in 2012, but, despite representations to the contrary, the violation remained uncorrected.

The SEC contended that MDC Partners also ran afoul of Item 10(e)(1)(i)(B) of Regulation S-K, which requires issuers to reconcile “by schedule or other clearly understandable method” the differences between the disclosed non-GAAP financial measures and the most directly comparable GAAP-based financial measure or measures. MDC Partners purportedly violated this provision in 2012 and 2013 when it disclosed a non-GAAP metric known as “organic revenue growth.” The SEC alleged that the company omitted reference to one of the metric’s three reconciling items, and, had it been calculated consistent with the only two reconciling items that were disclosed, the metric would have been lower. Further, the company purportedly failed to include tabular reconciliations to GAAP revenue in its periodic reports and earning releases.

The SEC found that MDC Partners’ non-GAAP disclosures violated Section 17(a)(2) of the Securities Act, Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act (and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder), and Rule 100(a)(2) of Regulation G. The company paid a $1.5 million civil penalty to settle these and other alleged violations.

  1. A Non-Reliance on Financial Statement Materiality

As in MDC Partners, there were two additional settlements last month that symbolized the SEC’s willingness to bring enforcement actions absent any quantitatively material misstatements in a company’s financial statements. A January 18, 2017 settlement with General Motors Company (GM) involved the automaker’s 2014 recall of more than 600,000 vehicles with defective ignition switches. Exchange Act Rel. No. 79825. The SEC alleged that GM engineers understood in 2012 that the ignition switches created a safety concern, but delayed more than a year in notifying those persons at the company responsible for assessing whether this concern gave rise to a loss contingency pursuant to Accounting Standards Codification (ASC) 450. ASC 450 requires issuers to evaluate whether a loss is “probable” or “reasonably possible” and, if so, sets forth when an estimated loss must be recorded or otherwise disclosed.

Interestingly, while the Order stated that GM recorded approximately $41 million for potential recall costs shortly after the internal notice was provided, it sidestepped the issue of whether GM had a probable or reasonably possible loss contingency at any time during the alleged period of delay. It also made no determination on the material accuracy of any financial statement or disclosure that may have been impacted. Instead, the SEC charged GM with possessing insufficient internal accounting controls in violation of Section 13(b)(2)(B) that stemmed from the delay in evaluating whether a loss contingency existed. GM agreed to pay a $1 million civil penalty to resolve the matter.

The SEC’s January 19, 2017 settlement with HomeStreet, Inc. provides another example. Exchange Act Rel. No. 79844. The SEC contended that the diversified-services company entered into interest rate swaps to hedge its exposure to changes in fair market value on approximately 20 fixed-rate commercial loans. The Company sought to apply hedge accounting pursuant to ASC 815, which allows qualifying issuers to record the fair value of both the hedged and hedging items, thereby alleviating potential income statement volatility from market fluctuations. The SEC contended that, between 2011 and 2014, certain HomeStreet commercial loans and interest-rate swaps periodically failed to meet the effectiveness ratio designed to test whether the necessary hedge correlation actually existed.

The order claimed that the company’s balance sheets and income statements were misstated during this period, because hedge accounting was applied to certain loans when the hedge associated with those loans failed to qualify. Notably, the order did not allege any of these misstatements were material; to the contrary, it acknowledged that the company and its outside auditors had concluded that the accounting errors were not material in any reporting period and no restatements were necessary. The SEC charged HomeStreet with books and records and internal control violations under Sections 13(b)(2)(A) and 13(b)(2)(B) for these GAAP-based deficiencies and imposed a $500,000 civil penalty for these and other violations.

  1. An Absence of Fraud Allegations

The SEC has pursued fraud-based claims in accounting matters with less regularity in recent years and, in turn, has increased its reliance on the less-imposing strict-liability provisions under Section 13 and negligence-based antifraud provisions under Section 17. January was no exception. None of the accounting settlements during the month included alleged fraudulent conduct, even though, in several instances, the tenor of the settlement language arguably signaled a more culpable state of mind than the violations required. In HomeStreet, the SEC also settled claims against the company’s chief investment officer, Darrell van Amen, who allegedly instructed a subordinate to make “unsupported adjustments” to the effectiveness ratio “for the purpose of making the testing results ‘effective.’” The Order also stated that the company made these adjustments to achieve effectiveness 64 times during the relevant period. The SEC charged van Amen under Sections 13(b)(2)(A) and 13(b)(2)(B). He agreed to pay a $20,000 civil penalty.

The HomeStreet settlement was not alone in this regard. The SEC instituted proceedings against L3 Technologies, Inc., an aerospace contractor, and Orthofix International, a medical device company, on January 11 and January 18, respectively. Exchange Act Rel. Nos. 79772, 79815. Both of these enforcement actions centered on allegations of improper revenue recognition in violation of ASC 605 and the recording of sales revenues before collectability was reasonably assured. In L3 Technologies, the order attributed this prohibitive conduct to “pressure from certain supervisors” to satisfy an annual operating plan, while the Orthofix order cited “a culture of aggressively setting internal sales targets and imposing pressure upon its sales personnel to meet those targets.” Both orders recounted material overstatements in revenue and attributed subsequent restatements to these improper deviations from GAAP.

Until recent years, these types of allegations routinely served as a blueprint for fraud-based claims. Then, the ensuing legal battle concentrated frequently on whether the SEC could establish the requisite state of mind. Now, under the current enforcement landscape, the absence of non-fraud claims renders the basic defense argument ineffective and, accordingly, often incentivizes cooperation and settlement. These two revenue recognition settlements in January are reflective of this trend. The SEC imposed a $1.6 million penalty on L3 Technologies for alleged Section 13(b)(2)(A) and 13(b)(2)(B) violations. Orthofix paid $8.25 million for its purported violations under Sections 17(a)(2) and 17(a)(3); Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B); and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. In each instance, the SEC recognized the company’s cooperation with its investigation.

Conclusion

January 2017 offered several prime examples of the current state of SEC enforcement in accounting-based actions. Of course, it also ushered in a new presidential administration and the prospect of substantial changes in policy and focus as SEC leadership readies to change. The coming months will offer an initial indication whether these emerging initiatives and recent trends continue to remain at the forefront of the SEC’s enforcement approach.

Latest Auditor Suspensions Illustrate Key SEC Enforcement Focal Points

On July 22, 2016, the SEC suspended an accounting firm and permanently suspended one of its former partners for conducting a defective audit for a publicly-traded company allegedly engaged in a fraud scheme that resulted in numerous material misstatements on its financial statements. Exchange Act Rel. No. 78393 (July 22, 2016). These suspensions derived from the SEC’s settlement with New York-based EFP Rotenberg, LLP and engagement partner Nicholas Bottini, CPA, for audit services performed on behalf of ContinuityX Solutions, Inc., which claimed to sell Internet services to businesses. The SEC found that EFP Rotenberg violated and Bottini aided and abetted and caused EFP Rotenberg’s violations of Sections 10A(a)(1) and 10A(a)(2) of the Securities Exchange Act of 1934 and Rule 2-02(b)(1) of Regulation S-X. It also concluded that the accounting firm and its former audit partner engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) and (iii) of the SEC’s Rules of Practice.

According to the Order, ContinuityX’s financial misstatements included impermissibly recognizing commission revenue from fraudulent sales transactions, recording assets belonging to third parties as its own and failing to disclose related party transactions. The SEC alleged that when auditing ContinuityX’s fiscal year 2012 financial statements, EFP Rotenberg and Bottini failed to perform sufficient audit procedures and repeatedly engaged in improper professional conduct that resulted in violations of PCAOB standards and demonstrated a lack of competence.  Specifically, the SEC found that the respondents failed to: “(1) appropriately respond to risks of material misstatement; (2) identify related party transactions; (3) obtain sufficient audit evidence; (4) perform procedures to resolve and properly document inconsistencies; (5) investigate management representations that contradicted other audit evidence; and (6) exercise due professional care.” Notwithstanding these shortfalls, the audit firm provided an unqualified opinion on the company’s annual financial statements.

The SEC supported its factual findings with numerous alleged instances in which EFP Rotenberg and Bottini either capitulated to the will of ContinuityX’s management or seemingly concluded their audit procedures prior to obtaining reasonable assurances. These alleged instances included:

  • Acquiescence to a scope limitation resulting from the company’s refusal to permit the auditors to obtain accounts receivable confirmations from third parties;
  • A failure of the engagement team to perform procedures sufficient to detect whether revenue was earned legitimately despite obtaining adequate documentation to do so;
  • An absence of audit workpaper documentation explaining the resolution of material inconsistencies between audit evidence and representations from management; and
  • A failure to insist that the company respond to an auditor inquiry regarding whether its chief financial officer had a related party relationship with a particular customer.

Without either respondent admitting or denying the SEC’s findings, EFP Rotenberg agreed to pay a $100,000 penalty and accept a one-year suspension from public company audits, conditioned upon the certification of an independent consultant that it has remedied the various causes behind its failure to detect ContinuityX’s fraud. Bottini agreed to a $25,000 penalty and a permanent suspension from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. In imposing these penalties, the Order stated that these were not the respondents’ first SEC violations. Both EFP Rotenberg and Bottini each had settled an unrelated 2014 SEC proceeding involving an audit for a separate client that occurred during 2011. In that earlier proceeding, which also included violations of Section 4C(a)(2) and Rule 102(e)(1)(ii), EFP Rotenberg consented to a $50,000 penalty while Bottini agreed to pay $25,000 and accept a minimum two-year suspension. Exchange Act Rel. No. 72503 (July 1, 2014).

Given the presence of repeat offenders and numerous audit deficiencies, it is tempting to discount the overall significance in these particular proceedings, especially when compared to recent enforcement actions brought against more recognizable accounting firms. This would be a mistake, however, as this case serves as a cautionary tale concerning both the particularized financial reporting issues that are receiving heightened regulatory attention and the actions (or inactions) that potentially trigger “gatekeeper” culpability. As Andrew Ceresney, Director of the SEC’s Division of Enforcement, confirmed in a speech earlier this year, two of the central accounting issues in these proceedings – revenue recognition and related party transactions – remain high enforcement priorities. At the same time, Director Ceresney also signaled to the auditing profession that it “must be the bulwark against client pressure” and “demand objective evidence and investigation when they come across situations which suggest inaccuracies in the company filings.” Otherwise, as these proceedings reveal, the SEC intends to make examples of auditors who are found to have shirked these responsibilities and “fail[ed] to heed numerous warnings and red flags concerning alleged frauds.”

SEC “Claws Back” Bonuses and Stock Sale Profits From CFOs of Public Company Charged With Accounting Fraud

On February 10, 2015, the SEC announced settlements with two former chief financial officers of Saba Software, a Silicon Valley software company, that require the CFOs to repay Saba more than $500,000 in bonuses and profits from stock sales earned subsequent to Saba’s false filings. Notably, the SEC did not allege that either former officer violated the federal securities laws in any fashion, nor was there evidence of either officer’s knowledge of, or complicity in, the underlying conduct that prompted the company to settle accounting fraud charges lodged against it by the SEC in September 2014. See Press Release, SEC Announces Half-Million Dollar Clawback from CFOs of Silicon Valley Company that Committed Accounting Fraud (Feb. 10, 2015).

The first CFO, William Slater, a former accountant who served as CFO from November 2011 through February 2013, and the second, Peter E. Williams III, a California attorney who served as CFO from March 2004 through July 2007 and again on an interim basis from October 2011 through January 2012, agreed to reimburse the company approximately $337,000 and $142,000, respectively, pursuant to Sarbanes-Oxley Section 304(a).

Section 304(a) provides that in the event an “issuer,” as defined under the Securities and Exchange Act of 1934, is required to issue a restatement of its accounting records as a result of misconduct under the securities laws, the issuer’s CEO and CFO “shall reimburse the issuer” for any bonus, “incentive-based,” or “equity-based” compensation, or for the profits from the officers’ personal sale of any of the issuer’s securities during the 12-month period following the first issuance of each allegedly violative financial statement. See 15 U.S.C. § 7243(a).

In September 2014, the SEC charged Saba with accounting fraud, and the company agreed to a settlement. The company was required to restate its financial records for the years 2008–2011 and for parts of 2012. In connection with the settlement with Saba, the SEC alleged that two Saba vice presidents had overseen a practice of misstating the hourly work of international consultants, both pre-booking and underbooking time statements, in order to adhere to prearranged time estimates. The practice violated GAAP and allegedly led to an overstatement of Saba’s revenues by approximately $70 million. The vice presidents responsible for the misconduct agreed to a collective disgorgement of approximately $55,000 and a collective penalty of $100,000, while the company agreed to pay a $1.75 million fine. At the time of the settlement, Saba’s CEO agreed to reimburse the company for more than $2.5 million in bonus, incentive, and equity-based pay that he received during the 12-month periods following the original issuance of the financial statements containing the alleged fraud. See Press Release, SEC Charges Software Company in Silicon Valley and Two Former Executives Behind Fraudulent Accounting Scheme (Sept. 24, 2014).

The SEC claims that “Section 304 does not require that a chief financial officer [or chief executive officer] engage in misconduct to trigger the reimbursement requirements.” William Slater, CPA and Peter E. Williams, III, Securities & Exchange Act of 1934 Release No. 74240, File No. 3-16381 (Feb. 10, 2015) at 5. Indeed, despite no evidence of fault or liability, Mr. Williams, who served as interim CFO for only four months between 2011 and 2012, was forced to reimburse the company for more than $140,000 in compensation he had received as a result of the allegedly violative financial statements.

This draconian clawback provision went into effect in 2002, although the SEC declined to actively enforce it until 2009. That year, the enforcement division settled accounting fraud charges with CSK Auto and four of its former executives, but in that case, it did not stop there. As former SEC Director of Enforcement Robert Khuzami announced in a December 8, 2009 speech, the SEC sought “to clawback more than $4 million in bonuses and stock sale profits from the former CEO, despite the fact that he was not alleged to have personally participated in the underlying financial wrongdoing.” Khuzami noted that, going forward, the SEC would use this “powerful enforcement tool” in “appropriate circumstances” in order to prevent CEOs and CFOs from “personally profit[ting] from misstated financial filings” and to incentivize these officers “to ensure the accuracy of [their] compan[ies’] financials.” Robert Khuzami, Remarks at AICPA National Conference on Current SEC and PCAOB Developments (Dec. 8, 2009).

Though Khuzami touted the new priority of the enforcement of this provision in another speech, see Robert Khuzami, Remarks at AICPA National Conference on Current SEC and PCAOB Developments (Aug. 5, 2009)  (“This is the first Section 304 action seeking to clawback compensation from an officer that was not alleged to have personally participated in the underlying financial wrongdoing.”), it is unclear when and why the staff will deem officers “appropriate” targets for clawbacks. In fact, because the provision requires no proof of culpability on the part of the corporate officers, the employment of this enforcement tool is particularly difficult to forecast.

Looking ahead, because Section 304(a) does not provide for a private right of action that would allow shareholders to seek reimbursement from CEOs and CFOs, see Cohen v. Viray, 622 F.3d 188, 193-194 (2d Cir. 2010), the SEC remains the exclusive enforcement entity of this powerful provision. There is some indication that we may see an expansion of requirements related to companies’ internal clawback policies through the implementation of Dodd-Frank, see Kara M. Stein, Remarks at the “SEC Speaks” Conference (Feb. 21, 2014) (“We also need to finalize rules about executive compensation, including provisions requiring issuers to have policies in place to claw back compensation.”), but in the meantime, enforcement will remain at the SEC’s whim.

Commissioner’s Dissent May Signal Harsher Sanctions Against Accountants

Commissioner Luis A. Aguilar provided the most recent illustration of the SEC’s renewed emphasis on enforcement actions involving accounting and financial statement fraud when, on August 28, 2014, he issued a rare written dissent from the agreed-upon settlement in In the Matter of Lynn R. Blodgett and Kevin R. Kyser, CPA,File No. 3-16045 (Aug. 28, 2014). In Blodgett, the SEC charged the former chief executive officer and chief financial officer of Affiliated Computer Services, Inc. (“ACS”) with causing the company’s failure to comply with its reporting, record-keeping, and internal control obligations in violation of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-14 thereunder. The two senior executives collectively paid nearly $675,000 in penalties, disgorgement and prejudgment interest to settle these cease-and-desist proceedings.

According to the SEC, ACS overstated revenue by $124.5 million in fiscal year 2009 by arranging for an equipment manufacturer to redirect through ACS certain preexisting orders that the manufacturer had already received from another company. These so-called “resale transactions” created the false appearance that ACS was involved in these transactions and, in violation of generally accepted accounting principles, generated revenue that allowed ACS to meet both company and analyst growth expectations. The SEC found that the senior executives, who certified the company’s Form 10-K and Forms 10-Q during this period, “understood the origination of these ‘resale transactions’ and their impact on ACS’s reported revenue growth,” but “did not ensure that ACS adequately described their significance in ACS’s public filings and on analyst calls.” Further, the SEC found that both senior executives personally benefitted from ACS’s overstated revenues because their bonuses were tied to the company’s financial performance.

In a Dissenting Statement published concurrent with the Order, Commissioner Aguilar singled out CFO Kyser’s “egregious conduct” and characterized the settlement with him as “a wrist slap at best.” Commissioner Aguilar expressed his belief that Kyser’s actions, “at a minimum,” also violated the nonscienter-based antifraud provisions under Sections 17(a)(2) and/or (3) of the Securities Act and warranted a suspension of Kyser’s ability to appear and practice before the Commission, pursuant to Rule 102(e) of the SEC’s Rules of Practice. As Commissioner Aguilar explained:

Accountants—especially CPAs—serve as gatekeepers in our securities markets. They play an important role in maintaining investor confidence and fostering fair and efficient markets. When they serve as officers of public companies, they take on an even greater responsibility by virtue of holding a position of public trust. To this end, when these accountants engage in fraudulent misconduct, the Commission must be willing to charge fraud and must not hesitate to suspend the accountant from appearing or practicing before the Commission. This is true regardless of whether the fraudulent misconduct involves scienter.

. . . .

I am concerned that this case is emblematic of a broader trend at the Commission where fraud charges—particularly non-scienter fraud charges—are warranted, but instead are downgraded to books and records and internal control charges. This practice often results in individuals who willingly engaged in fraudulent misconduct retaining their ability to appear and practice before the Commission.

While Commissioner Aguilar’s comments may have represented the minority position in Blodgett, this public airing of differences triggered a prompt response from within the Commission. SEC Director of Enforcement Andrew Ceresney issued a press release the following day underscoring that accounting and financial fraud cases remain a “high priority” and noting that “financial reporting cases for 2014 so far have surpassed last year’s total number of cases by 21 percent.” Director Chesney also referenced the recent increase in investigations being conducted by the Financial Reporting and Audit Task Force, which the SEC formed in July 2013.

This documented upsurge in enforcement actions and investigations is consistent with the SEC’s stated policy initiatives for 2014. SEC Chair Mary Jo White warned registrants in January that the Commission would prioritize financial fraud with a particularized focus on the actions of auditors and senior executives. In doing so, she explained, the SEC intended to convey the message “that critical accounting issues are the responsibility of all those involved in the preparation and review of financial disclosures.” Now, less than eight months later, Commissioner Aguilar has sought to further strengthen this message by imposing tougher sanctions on accountants deemed to be at the center of the misconduct. Future settlements will demonstrate to the accounting industry—and the securities profession as a whole—whether his publicized appeal prompted significant change at the Commission.

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