SEC Moves to Dismiss Pending Administrative Proceedings Against Auditors

In recent weeks, the SEC has moved to dismiss a number of litigated administrative proceedings pending against auditors alleging improper professional conduct and violations of professional auditing or accounting standards. These actions had been instituted pursuant to Rule 102(e) of the SEC’s Rules of Practice, as well as Sections 4C and, in most instances, 21C of the Securities Exchange Act of 1934 (“Exchange Act”). Examples can be found here: Administrative Proceeding File No. 3-20394, Administrative Proceeding File No. 3-20794, Administrative Proceeding File No. 3-21139, Administrative Proceeding File No. 3-21214, Administrative Proceeding File No. 3-21241, Administrative Proceeding File No. 3-21298, Administrative Proceeding File No. 3-21314.

Rule 102(e) and Section 4C of the Exchange Act authorize the SEC to censure an auditor or suspend them from practicing before the Commission if they have engaged in improper professional conduct, willfully violated, or willfully aided and abetted any provision of the federal securities laws or regulations thereunder. Section 21C of the Exchange Act authorizes the SEC to institute cease-and-desist proceedings against any person that it finds is violating, has violated, or is about to violate any provision of the Exchange Act or rule thereunder, or is causing, has caused, or would be a cause of such violation. Section 21B of the Exchange Act gives the SEC the authority to seek civil penalties in any proceeding instituted pursuant to Section 21C.

The motions to dismiss do not provide any details and remain pending, and the Commission does not appear to have issued any public statement explaining its reasons for moving to dismiss these matters. One potential explanation is that the Commission has moved to dismiss these matters as a consequence of the June 27, 2024 Supreme Court decision in SEC v. Jarkesy, in which the Supreme Court held that under the Seventh Amendment’s guarantee of a right to a jury trial, the SEC must bring civil-penalty actions for securities fraud in federal court. Notably, the Commission has not moved to dismiss several pending administrative proceedings against CPAs that were instituted only pursuant to Rule 102(e). See Administrative Proceeding File No. 3-21239 and Administrative Proceeding File No. 3-21968.