Can the SEC Go After My CPA License?
SEC Investigation Defense Team for Certified Public Accountants
This is one of the most common questions that accountants have when they are facing securities fraud allegations. While the SEC cannot directly revoke your CPA license, it can bar you from practicing before the Commission. This can have devastating consequences for your career; and in some cases, it can lead to disciplinary action at the state level, as well.
Allegations of securities fraud can have serious ramifications for professionals in the financial sector. This includes certified public accountants (CPAs). Along with facing the potential for civil or criminal penalties, financial professionals can also face disciplinary action that threatens their professional licenses.
CPAs who are facing allegations of securities fraud need to be very careful about their next steps. Whether facing allegations brought by the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DOJ), the state attorney general’s office, or any other federal or state agency, it is critical to have a highly-experienced defense team on your side.
What the SEC Can and Cannot Do Regarding CPAs’ Licenses
When facing an SEC investigation, one of the first questions CPAs have is, “Can the SEC go after my CPA license?” The answer to this question is, “No”—at least not directly. The SEC does not have the authority to directly revoke a CPA’s license. The SEC also does not have the authority to directly discipline CPAs in any other way.
But, the SEC’s authority does extend to barring CPAs from practicing before the Commission. Under Rule 102(e) of the SEC’s Rules of Practice, the Commission can bar CPAs from practicing before the Commission if they are found to have violated the federal securities laws, including (but not limited to) the Sarbanes-Oxley Act (SOX), the Securities Exchange Act of 1934, the Securities Act of 1933, the Investment Advisers Act of 1940, and the Investment Company Act of 1940.
Along with the federal securities laws, Rule 102(e) also authorizes the SEC to bar CPAs from practicing before the Commission if they are found to have violated any of the SEC’s rules or regulations. This includes the SEC’s rules and regulations adopted under SOX, the Securities Exchange Act, the Securities Act, the Investment Advisers Act, and the Investment Company Act, as well as the SEC’s other more-general rules and regulations governing accountants, investment professionals, and market participants.
When it bars CPAs from practicing before the Commission, the SEC will also generally issue a cease-and-desist order prohibiting further violations of the relevant statute, rule, or regulation. These orders generally remain in effect indefinitely, as do bars from practicing before the Commission (unless reinstatement is authorized under Rule 102(e)(5)).
What Does It Mean to Be “Barred from Practicing Before the Commission”?
Under Rule 102(f), CPAs are deemed to be “practicing before the Commission” if they are providing services or opinions in connection with any matter that is either related to the federal securities laws or falls within the SEC’s jurisdiction. As Rule 102(f) states:
“The term practicing before the Commission . . . shall include, but shall not be limited to: (1) Transacting any business with the Commission; and (2) The preparation of any statement, opinion, or other paper by any attorney, accountant, [or] engineer . . . or other professional or expert . . . in any registration statement, notification, application, report, or other document filed in a proceeding with the Commission (whether or not such attorney, accountant, [or] professional . . . or expert . . . is practicing as an attorney, accountant, [or] professional . . . or expert . . . or in another capacity, or whether or not such attorney, accountant, [or] professional . . . or expert . . . is a principal, employee, or agent of the party filing such statement, opinion, or other paper). . . .”
In practice, this means that CPAs who are barred from practicing before the Commission cannot represent clients in connection with any matter that is filed or pending before the SEC. This includes filings under SOX, the Securities Exchange Act, the Securities Act, the Investment Advisers Act, and the Investment Company Act, among many others. As a result, as a practical matter, being barred from practicing before the Commission can effectively mean the end of a CPA’s career.
Can SEC Enforcement Actions Lead to Disciplinary Action at the State Level?
While an SEC enforcement action won’t directly result in the loss of a CPA’s license, it can lead to disciplinary action at the state level. While each state has its own laws and administrative rules governing CPA discipline, most state boards of accountancy are required to open investigations when they learn that CPAs licensed in their state have been charged with or found guilty of securities fraud. In these investigations, CPAs can face the potential for license revocation, suspension, and other sanctions.
For CPAs, facing a state board investigation is a two-edged sword. On one hand, if the board doesn’t find a basis for disciplinary action, it may be possible to continue practicing even after being barred from practicing before the Commission. On the other hand, if a state board investigation leads to an adverse finding, the CPA’s misconduct will be on record with the state, and this could lead to more-severe consequences in any future state or federal investigations.
What Other Consequences Can SEC Investigations Have for CPAs?
Along with the potential to bar CPAs from practicing before the Commission, an SEC investigation can have several other consequences for CPAs as well. These consequences include:
Loss of Client Relationships
Allegations of securities fraud can strain CPAs’ client relationships. Even if an SEC investigation does not lead to an enforcement action, the investigation itself may cause clients to take their business elsewhere. If an SEC enforcement action leads to a CPA being barred from practicing before the Commission, this will prevent the CPA from providing services that many clients will need—and this will in turn lead to even greater financial consequences.
Loss of Professional Relationships
Allegations of securities fraud can strain CPAs’ professional relationships as well. In many cases, CPAs will need to notify their employers, their partners, and other affiliates of the SEC’s investigation, and these parties will need to decide whether to continue their relationship with the CPA. If an SEC enforcement action leads to a CPA being barred from practicing before the Commission, this will likely preclude the CPA from maintaining many professional relationships.
Administrative, Civil, or Criminal Penalties
Along with being barred from practicing before the Commission, CPAs who are targeted for securities fraud can also face administrative, civil, or criminal penalties. In less-severe cases, the SEC may issue a cease-and-desist order and impose a civil monetary penalty. In more-severe cases, the SEC may refer the case to the DOJ for criminal prosecution. Depending on the specific allegations involved, CPAs can face the potential for fines in the millions of dollars and federal prison time.
Collateral Consequences
Along with the direct consequences of an SEC investigation, CPAs can face various collateral consequences as well. For example, once CPAs are charged with securities fraud, they will need to report their charges to the Financial Industry Regulatory Authority (FINRA) and other self-regulatory organizations (SROs). The SEC, DOJ, and other agencies may also make public announcements about their investigations or enforcement actions, and these announcements can lead to significant negative publicity. Finally, if an SEC investigation leads to charges against a CPA’s employer, the employer may make a claim against the CPA for any administrative, civil, or criminal penalties it is forced to pay.
What Can (and Should) CPAs Do if They are Facing SEC Investigations?
Given the risks involved with facing an SEC investigation, CPAs need to take their investigations very seriously. This means engaging a defense team right away, and it means working with the team to execute a comprehensive and strategic defense.
At Spodek Law Group, our defense team is comprised of former federal prosecutors, former DOJ trial attorneys, former white-collar investigative agents, and career federal defense lawyers. Our former federal prosecutors and investigative agents have an in-depth understanding of the SEC’s investigative process, and our former prosecutors and defense lawyers have a long track record of success in high-stakes federal cases. We take a team approach to defending CPAs; and, when you engage our firm to represent you, you will work with senior attorneys and former federal agents throughout your case.
