SEC Fines Mid-Level Corporate Officer $75,000 for Accounting Violations
The SEC fined a company’s retail controller $75,000 and barred him from appearing before the Commission for changing accounting policies in violation of GAAP. The SEC charges that the respondent worked against his company’s outside valuation firm and audit firm by changing treatment of certain acquired assets, thereby increasing third quarter 2009 reported earnings. The SEC states that the respondent took the position as retail controller after the Controller, his supervisor, terminated his predecessor. The SEC says that “the Controller was being scrutinized by … senior management as a possible successor to the CFO.” The SEC charges the respondent with violating Section 17 of the Securities Act (antifraud), Rule 13b2-1 of the Exchange Act (prohibition on falsifying books and records), and aiding and abetting violations of Section 13.
OUR TAKE: This action against the retail controller is very puzzling. Why did he get singled out but none of his supervisors have (yet) been charged? What was his motive other than pleasing his boss, who the SEC suggests was jockeying for a promotion? Why was he fined $75,000 when the SEC did not allege that he received any specific personal benefit? Can an individual corporate officer be liable for violating the antifraud provisions of the Securities Act, or does Section 17 only apply to registrants themselves? Perhaps, the SEC is warning corporate officers that they have a higher duty than simply pleasing their employers.