What Is SEC Rule 102(e)?

Rule 102(e) of the SEC Rules of Practice permits the SEC to deny practice privileges to professionals found to lack qualifications, integrity, or who engage in “unethical or improper professional conduct,” or who willfully violate federal securities laws.

For accountants specifically, improper professional conduct includes:

• Intentional, knowing, or reckless conduct violating professional standards
• Single instances of highly unreasonable conduct in circumstances requiring heightened scrutiny
• Repeated unreasonable conduct indicating incompetence to practice before the Commission

The SEC can discipline individuals and firms representing others before the Commission, including attorneys handling SEC investigations.

Examples of Professional Misconduct Subject to Discipline Under Rule 102(e)

Filing False or Misleading Reports — Intentionally, recklessly, or negligently submitting financial statements or required reports containing false, misleading, or incomplete information.

Failing to Report Filed Violations to the SEC — Accountants and professionals aware of federal securities law violations may have reporting duties; failure to report warrants discipline.

Failing to Supervise Employees Engaged in SEC-Facing Work — Supervisors must ensure employees don’t commit errors or violations; supervisor failures enabling employee misconduct trigger discipline.

Aiding and Abetting Violations of the Federal Securities Laws — The SEC can pursue disciplinary action against professionals facilitating securities law violations.

Failing to Comply with Other Professional Duties — Violations of duties imposed by federal securities laws and state licensing boards warrant discipline.

5 Important Facts About Facing Professional Discipline Under Rule 102(e)

1. Disciplinary Proceedings Under Rule 102(e) Are Administrative in Nature

These proceedings involve hearings before Administrative Law Judges with different procedural frameworks than civil or criminal enforcement litigation.

2. Disciplinary Proceedings Can Be Preceded by an SEC Investigation

SEC investigations may precede formal disciplinary proceedings. Professionals under SEC Division of Enforcement investigation should engage experienced defense counsel immediately.

3. SEC Professional Discipline Can Lead to Loss of a Professional License

Loss of licensing authority to practice before the SEC represents a significant consequence for attorneys and accountants.

4. SEC Professional Discipline Can Lead to Loss of Privileges Before the Commission

Beyond licensing loss, disciplinary action prevents attorneys from representing clients in SEC matters and prevents accountants from filing financial documents with the Commission.

5. Professionals Facing Discipline Can Face Collateral Consequences

Additional consequences include:

• SEC civil enforcement litigation based on federal securities law violations
• Criminal prosecution for insider trading, securities fraud, or false public filings
• Professional discipline before state licensing boards and bar associations

Are You Facing Disciplinary Action Under Rule 102(e)?

Experienced defense counsel can help develop defenses, including establishing non-involvement in securities violations or improper conduct, demonstrating absence of reporting duties, proving proper employee supervision, and challenging SEC findings regarding intent, knowledge, or recklessness.