The SEC initiated 34 enforcement actions involving accounting or auditing allegations against 26 individuals and 20 firms in 2021. All of these were initiated as administrative proceedings. The number of actions marked a 32% drop from 50 in 2020 and reflected a decrease in enforcement activity for the third straight year.
Total SEC settlements totaled $158 million, of which $151 million were against firms. The total monetary settlements against individuals nearly doubled since 2020 to $7 million. The highest settlement was $62 million, well below the maximum settlement in either 2019 or 2020. In 11 of the 49 settlements, the SEC reported that it considered the respondent’s self-reporting, cooperation, and/or remedial efforts as it set penalties and other remedies.
“After Chair Gary Gensler took office, the SEC accounting and auditing enforcement activity in 2021 progressed at a greater pace compared to the activity in the early months of the prior administration under then-Chair Jay Clayton,” said Simona Mola, a report coauthor and senior manager at Cornerstone Research. “Despite the overall decline in the 2021 level of enforcement activity relative to last year, Gurbir Grewal, Director of the SEC’s Enforcement Division, has publicly pledged that the Division will focus future efforts on ‘restoring trust’ in the financial markets, and that we can expect ‘aggressive use’ of remedies that deter misconduct, including larger monetary penalties, to protect investors and the marketplace.”
Of the 34 SEC enforcement actions in 2021, 19 referred to announced restatements and five referred to announcements of material weaknesses in internal control over financial reporting. The two most common allegations, each involving one-third of the total actions, related to a company’s revenue recognition and internal accounting control violations.
The percentage of SEC actions in 2021 referring to announced restatements and/or material weaknesses in internal control was notably higher than the pre-pandemic average. However, only 37% of the actions referring to restatements alleged improper revenue recognition, down from 83% the prior year.
The PCAOB publicly disclosed 18 audit-related enforcement actions in 2021, up 38% from 13 in the previous year but well below pre-pandemic levels. Of the 15 individual and 11 firm respondents that settled with the PCAOB in 2021, monetary settlements were imposed on 18 (69%). Monetary settlements totaled approximately $1.1 million.
Despite pandemic-related restrictions on travel, the percentage of PCAOB actions involving non-U.S. respondents in 2021 (33%) returned to pre-pandemic levels and was comparable to the 2016–2019 average (31%).
“While PCAOB enforcement activity remained low overall in 2021, the 13 actions finalized in the third quarter equaled the total number of PCAOB actions in 2020 and could mark the start of an upswing in enforcement,” said Alison Forman, a report coauthor and principal at Cornerstone Research. “During a speech in December, Patrick Bryan, Director of the PCAOB’s Division of Enforcement and Investigations, stated that his division will ‘hit the ground running’ in 2022.”