Compliance
SEC Approves Stricter Audit Rules, Regulatory Threshold Lowered from 'Reckless' to 'Negligent'
The U.S. Securities and Exchange Commission (SEC) has approved stricter rules targeting auditor 'negligence,' updating PCAOB Rule 3502 for the first time in over two decades, allowing regulators to hold auditors accountable under a negligence rather than recklessness standard. The move was supported by SEC Chair Gary Gensler but opposed by two Republican commissioners, who argued it could lower audit quality and exacerbate talent attrition.
Court rules FTC overstepped authority in issuing non-compete ban
Texas federal judge Ada Brown ruled on August 20 that the Federal Trade Commission's (FTC) nationwide ban on non-compete agreements, issued under Section 6(g) of the Federal Trade Commission Act, was a misreading of its own authority, and permanently blocked the rule from taking effect on September 4. The court held that the provision only authorizes procedural rulemaking, not substantive bans, and that the rule itself was arbitrary and capricious. The FTC indicated it is considering an appeal.
Icahn Enterprises pays $1.5 million to settle SEC charges
The U.S. Securities and Exchange Commission (SEC) charged Carl Icahn and his controlled company Icahn Enterprises (IEP) for failing to disclose that Icahn pledged company securities to secure personal loans. The SEC stated that Icahn pledged between 51% and 82% of IEP's outstanding securities from late 2018 to 2024. IEP agreed to pay $1.5 million, and Icahn personally paid $500,000 to settle the charges. Previously, short-seller Hindenburg Research had issued a report accusing IEP of inflated asset valuations, triggering regulatory investigations.
RBC Countersues Former CFO: Seeks C$4.4 Million and Discloses Evidence of Intimate Relationship
Last week, the Royal Bank of Canada (RBC) filed a countersuit against former CFO Nadine Ahn, seeking to recover C$4.4 million (approximately US$3.2 million) in "excess compensation" and submitted evidence including text messages and emails, alleging an undisclosed intimate relationship with former Treasurer Ken Mason. Ahn and Mason have separately sued RBC this month, claiming the bank mischaracterized their relationship and caused reputational damage.
PCAOB: Audit Firm Reporting Deficiency Rates Continue to Climb, Big Four Performance Stabilizes
The PCAOB's 2023 annual inspection report shows that audit firm reporting deficiency rates continue to rise, but the deficiency rates of the Big Four accounting firms (PwC, Deloitte, EY, and KPMG) remained stable at 26%, with a decrease in the concentration of deficiencies, indicating improvements in their quality control systems. PCAOB Chair Erica Williams stated that the overall deficiency rate remains unacceptable, and firms need to redouble their efforts to enhance audit quality.
SEC fines 26 financial institutions $390 million for record-keeping violations
The U.S. Securities and Exchange Commission (SEC) announced fines totaling $390 million against 26 financial services companies for violating federal record-keeping regulations by failing to properly maintain and preserve electronic communications over an extended period. The fined companies include Ameriprise Financial Services, Edward D. Jones, Raymond James, and others. SEC Enforcement Director Gurbir Grewal emphasized that such violations impede investigations and reiterated the importance of record-keeping requirements. Some companies received lighter penalties for proactive self-reporting.
SEC fines former Ideanomics CEO $3.5 million for alleged fraud
The U.S. Securities and Exchange Commission (SEC) fined the former CEO of Ideanomics a total of $3.5 million, including $3.3 million in disgorgement and a $200,000 civil penalty, for allegedly defrauding investors between 2017 and 2019 through inflated revenue, concealed related-party transactions, and improper accounting practices. The SEC also brought fraud charges against the company's current CEO and former CFO.
IRS Restarts Review of Pandemic-Era Employee Retention Tax Credit Claims
The Internal Revenue Service (IRS) announced it has restarted its review of Employee Retention Credit (ERC) claims from the pandemic era, recently sending 28,000 denial notices to businesses for claims that, if approved, could have led to up to $5 billion in improper payments. The agency also stated it has confirmed 50,000 valid claims and is accelerating them into the payment process.
New Jersey Law Firm Asks Court to Dismiss Former CFO's Chapter 11 Bankruptcy Filing
The national law firm McElroy, Deutsch, Mulvaney & Carpenter filed a motion on Thursday with the New Jersey bankruptcy court to dismiss the Chapter 11 bankruptcy petition of former Chief Financial Officer John Dunlea. The firm alleges that Dunlea's primary purpose in filing for bankruptcy is to delay the ongoing civil litigation between the parties, rather than to achieve financial reorganization. Previously, Dunlea had been sentenced to five years in prison for misappropriating more than $1.5 million from the firm.
Large Company Clawback Policies Generally Stricter Than SEC Rules
FW Cook analysis shows that four out of five large companies (market capitalization ≥ $10 billion) have policies that exceed the scope and rigor of the U.S. Securities and Exchange Commission (SEC) rules effective since January in clawing back executive incentive compensation. Approximately 70% of companies apply clawback provisions to a broader range of personnel than the Section 16 officers defined by the SEC; nearly 65% of companies use fraud or misconduct (whether or not resulting in a restatement) as a clawback trigger; and nearly 70% of companies require clawback of a broader range of compensation types, including time-based awards.