SEC Broadly Interprets Industry Bar Imposed on Accountant
The SEC refused to narrowly interpret an industry bar against an accountant who sought to continue to serve on a public company audit committee. The accountant had agreed to a five-year suspension from practicing before the SEC because of allegations about earnings smoothing at his prior employer where he served as CFO. However, the accountant wanted to continue to serve on the audit committee of another public company. He sought clarification that the industry bar would not prohibit him from serving in non-accountant positions such as an audit committee or as a non-accountant CFO. The SEC refused to narrowly construe the industry bar, opining that a broader and less-specific interpretation of an industry bar serves its remedial purpose of prohibiting unethical or incompetent accountants from participating in the preparation of financial statements. The SEC asserted that the accountant was on notice to avoid any position that increases the likelihood that he could engage in prohibited conduct.
OUR TAKE: The SEC generally reacts very negatively to prohibited persons from testing the limits of an industry bar. The Commission generally looks at the activities undertaken rather than titles.