Called To Account: SEC's Latest Internal Accounting Controls Action Reignites Debate

Several years ago, the U.S. Securities and Exchange Commission (SEC) issued an order against a public company that raised more than a few eyebrows. In that order, the company settled to violations of Section 13(b)(2)(B) of the Exchange Act, typically known as the "internal accounting controls" provision. But the order did not allege anything about the company's accounting or disclosures was improper. Instead, the SEC's order found that the company purportedly failed to provide sufficient controls about its stock repurchase plan such that the company engaged in such transactions without properly evaluating whether the company was in possession of material, nonpublic information. The SEC did not charge the company with insider trading violations. The company paid $20 million to settle the matter. The order raised the ire of two dissenting commissioners, who described Section 13(b)(2)(B) as "not the appropriate tool" in this context, and ignited a significant debate