What Executives, CFOs, and Controllers Need to Know When the SEC Comes Knocking
What You Need to Know
- Accounting fraud encompasses a wide range of misconduct, from aggressive revenue recognition to falsifying books and records, and can lead to both SEC civil penalties and DOJ criminal charges.
- The line between aggressive accounting and fraud is often intent and materiality; executives may face negligence-based violations or fraud charges depending on their involvement and cooperation.
- SEC investigations often lead to parallel DOJ criminal referrals, meaning executives must defend against both civil enforcement and potential prison time.
- Cooperation timing is critical: Executives who quickly cooperate can often avoid criminal charges, while those who delay or obstruct may face prison sentences of 5-25 years.
- Recent cases show executives settling with the SEC for negligence while others are charged with fraud in the same investigation, underscoring the importance of proactive legal strategy.
Do You Need a Federal Accounting Fraud Defense Lawyer?
- You are a CFO, controller, or finance executive who just received a Wells notice, subpoena, or learned your company is under SEC investigation for accounting irregularities.
- You are a public company executive or accountant worried about personal liability for revenue recognition, expense timing, or segment reporting practices.
- You are a finance professional who has been asked to participate in or sign off on “aggressive” accounting entries and are concerned they may be viewed as fraudulent.
- You are an executive or auditor aware of a material weakness in internal controls or a restatement and need to understand your exposure.
- You are a whistleblower or internal auditor who has uncovered potential financial statement fraud and need to protect yourself while reporting it.
What Spodek Law Group Can Do for You
- We represent executives and companies in SEC accounting fraud investigations, Wells notice responses, and federal grand jury proceedings.
- We defend against SEC civil enforcement actions for violating Section 13(b)(2)(A) of the Exchange Act (books and records), Section 10(b) and Rule 10b-5 fraud charges, and Sarbanes-Oxley violations.
- We negotiate settlements with the SEC to resolve accounting fraud cases on negligence-based terms rather than fraud, protecting executives from criminal exposure.
- We handle parallel SEC/DOJ investigations and defend clients against wire fraud, securities fraud, and conspiracy charges arising from accounting misconduct.
- We advise executives, accountants, auditors, and whistleblowers on how to respond to SEC subpoenas, internal audits, and accounting irregularities to avoid personal liability.
Why Choose Spodek Law Group
- Our team includes former federal prosecutors, SEC enforcement attorneys, and white-collar defense lawyers who have handled complex accounting fraud cases at the highest levels.
- We have a national reputation for defending executives and companies in high-profile SEC and DOJ accounting fraud matters, including major revenue recognition, restatement, and FCPA investigations.
- We have successfully resolved SEC accounting fraud cases on favorable terms, including negligence-based settlements and non-prosecution agreements, protecting our clients’ careers.
- We have the experience to navigate parallel civil and criminal investigations, preparing clients for SEC testimony, grand jury subpoenas, and trial.
- We understand the nuances of accounting fraud law, from GAAP violations to internal controls, and know how to present complex financial issues in a way that protects our clients.
The SEC Is Cracking Down on Revenue Recognition, Internal Controls, and Financial Statement Fraud
Accounting fraud is one of the most aggressively prosecuted white-collar crimes of the past decade. The SEC and DOJ have ramped up enforcement against public companies, accounting executives, and auditors for a wide range of financial reporting violations, including revenue recognition, expense manipulation, reserves, segment reporting, and internal controls over financial reporting (ICFR).
Under GAAP and federal securities laws, public companies and their financial officers have a duty to maintain accurate books and records, implement effective internal controls, and report financial statements that are materially correct. When a company falsifies revenue, manipulates expenses, or fails to maintain adequate controls, it can violate multiple federal laws, including:
- Section 13(b)(2)(A) of the Exchange Act – Requires public companies to keep books and records that accurately and fairly reflect transactions.
- Section 13(b)(2)(B) of the Exchange Act – Requires companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized and recorded.
- Section 10(b) of the Exchange Act and Rule 10b-5 – Prohibit making untrue statements of material fact or omitting material information in connection with the purchase or sale of securities (“securities fraud”).
- Sarbanes-Oxley (SOX) Sections 302 and 906 – Require CEOs/CFOs to certify the accuracy of financial statements and criminalize knowingly certifying false reports.
The most common types of accounting fraud investigated by the SEC are:
- Revenue recognition schemes (booking revenue prematurely, channel stuffing, bill-and-hold)
- Expense manipulation (delaying or capitalizing expenses to inflate profits)
- Manipulating reserves and allowances (cookie jar reserves)
- Falsifying books and records to hide losses
- Material weaknesses in internal controls and management override
- Insider trading based on non-public financial results
The DOJ Brings Criminal Charges Against Executives for Accounting Fraud
While the SEC brings civil enforcement actions, accounting fraud can also result in parallel criminal charges by the DOJ for wire fraud, securities fraud, conspiracy, and false statements. In recent years, the DOJ has charged CFOs, controllers, treasurers, and public company CEOs with criminal offenses arising from accounting irregularities, restatements, and internal control failures.
Some notable accounting fraud criminal cases include:
- Paul Roberts (Kubient, Inc.) – Pleaded guilty to accounting fraud scheme involving revenue recognition, sentenced to prison in March 2025.
- U.S. Navy Shipbuilder – Pleaded guilty to financial accounting fraud scheme and obstructing a Defense Department audit in August 2024.
- Samuel Bankman-Fried (FTX) – Found guilty of two counts of wire fraud, sentenced to 25 years, in one of the largest financial frauds in history.
The DOJ typically brings criminal charges when the accounting fraud is egregious, involves personal enrichment, investor losses are substantial, or executives interfere with an audit or internal investigation. Executives who cooperate early may avoid criminal charges, while those who obstruct or fail to cooperate may face prison time.
SEC Settlements vs. Criminal Charges: Why Some Executives Pay Fines While Others Face Prison
In many accounting fraud investigations, the SEC and DOJ pursue parallel civil and criminal charges against the company and its executives. Some executives settle with the SEC for negligence-based violations (e.g., internal controls) while others in the same case face fraud charges.
A recent example is the Archer-Daniels-Midland (ADM) case:
- ADM – Settled with the SEC for internal controls and books and records violations.
- Vince Macciocchi and Ray Young – Former ADM executives settled with the SEC for negligence-based violations.
- Vikram Luthar – Former ADM executive faced a litigated action for fraud and deceit (Section 10(b) and Rule 10b-5).
The key factors that determine whether an executive settles for negligence or faces fraud charges are:
- Cooperation – Executives who promptly cooperate and provide information to the SEC are more likely to settle for negligence.
- Intent – The difference between negligence and fraud often comes down to intent; the SEC must prove scienter (wrongful intent) to charge fraud.
- Materiality – The materiality of the accounting misstatement or restatement affects the severity of the charges.
- Timing – The sooner an executive comes forward, the more likely they can limit their exposure to civil penalties rather than criminal prosecution.
Common Accounting Fraud Schemes Investigated by the SEC and DOJ
Accounting fraud can take many forms, but the most common schemes prosecuted by the SEC and DOJ include:
- Premature Revenue Recognition – Booking revenue before it is earned or before transfer of risk, such as in channel stuffing or bill-and-hold schemes.
- Expense Manipulation – Delaying expenses or improperly capitalizing costs to inflate profits or meet earnings targets.
- Cookie Jar Reserves – Overstating reserves in good years to release them in bad years and smooth earnings.
- Falsifying Books and Records – Creating false entries, back-dating contracts, or misrepresenting transactions to auditors.
- Material Weaknesses in Internal Controls – Failing to maintain adequate internal controls over financial reporting (ICFR), leading to material misstatements.
- Concealing Losses – Hiding losses by shifting them to off-balance sheet entities, subsidiaries, or related parties.
- Insider Trading Based on Financial Results – Trading on non-public information about a company’s financial performance before it is disclosed to the market.
Accounting Fraud Penalties: SEC Civil Fines, Injunctions, and Criminal Prison Time
The penalties for accounting fraud can be severe and life-changing, including:
- SEC Civil Penalties – Companies and individuals can face civil fines, disgorgement of ill-gotten gains, and prejudgment interest.
- SEC Injunctions and Bars – The SEC can obtain injunctions prohibiting future violations and bar individuals from serving as corporate officers or directors.
- SOX Criminal Penalties – Knowingly certifying false financial statements under Sarbanes-Oxley can result in up to 20 years in prison.
- Wire Fraud and Securities Fraud – Criminal statutes such as wire fraud and securities fraud carry prison sentences of up to 20-25 years.
- Restitution and Forfeiture – Criminal convictions often require restitution to victims and forfeiture of ill-gotten gains.
In addition to fines and prison, accounting fraud charges can destroy careers, revoke professional licenses (e.g., CPA), and permanently damage reputations.
Defending Executives and Companies in Accounting Fraud Investigations
Defending against accounting fraud investigations requires a sophisticated understanding of GAAP, internal controls, SEC regulations, and federal criminal law. The defense strategies depend on the specific allegations, but common approaches include:
- Demonstrating Good Faith – Showing that accounting decisions were made in good faith, based on reasonable judgment, and without intent to defraud.
- Challenging Materiality – Arguing that alleged misstatements were not material to investors or the company’s financial position.
- Internal Controls Improvements – Demonstrating that the company has remediated any internal control weaknesses and implemented stronger controls.
- Cooperation and Negotiation – Cooperating with the SEC and DOJ, providing information, and negotiating settlements to avoid criminal charges.
- Expert Testimony – Using accounting and auditing experts to explain complex financial issues and rebut allegations of intentional fraud.
How Spodek Law Group Can Help in Accounting Fraud Cases
Spodek Law Group has extensive experience defending executives, companies, and auditors in accounting fraud investigations, including:
- SEC revenue recognition investigations
- Sarbanes-Oxley and internal controls cases
- SOX certification violations
- Criminal securities fraud and wire fraud cases based on accounting
- Parallel SEC/DOJ investigations and grand jury subpoenas
- DOJ and whistleblower investigations
Our team includes former federal prosecutors, SEC enforcement attorneys, and white-collar defense lawyers who understand the complexities of accounting fraud cases. We represent clients in SEC Wells notice responses, SEC enforcement litigation, and criminal trials across the country.
If you are facing an accounting fraud investigation, contact Spodek Law Group today for a confidential consultation.
Contact Spodek Law Group Today
If you are facing SEC or DOJ scrutiny for accounting fraud, our legal team can help. Call 212-300-5196 for a confidential consultation.
