Tzachi Zach

Professor of Accounting and Department Chair of Accounting and MIS at Fisher College of Business, The Ohio State University.

The SEC is considering allowing public companies to report financial results twice a year instead of four times. I have been tracking every comment letter filed on this proposal, over 43,000 (as of July 14, 2026) and climbing fast as the SEC posts its backlog and I process it. One thing was apparent early: retail investors hate this idea. Among individual writers, opposition runs around 99%.

Some of that opposition arrived on its own. A lot of it was organized.

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The campaigns

Several campaigns pushed retail investors to write to the SEC. The most obvious way to spot a campaign is the form letter: thousands of people submitting the exact same text through an advocacy site. The SEC posts these as a single template with a submitter count, and my tracker counts them separately from individually written letters. As of today, those form letter campaigns account for more than 66,000 submissions across 11 templates.

The Motley Fool ran a different kind of campaign. Founded in 1993 by brothers Tom and David Gardner as a traditional print newsletter, its website says it has been “leading the charge for individual investors everywhere.” On June 15 it posted a message titled “Tell the SEC: Individual Investors Deserve More Information, Not Less,” invoking its previous Reg FD letter-writing campaign in 2000, and walking newsletter members through the SEC’s semiannual reporting proposal comment form.

Two instructions matter so this story can be told. Members were instructed to write “The Motley Fool Community” in the form’s Affiliation Name box. And the post listed key points to make in the comment:

• Quarterly reporting protects individual investors.

• The short-termism evidence does not hold up.

• Smaller companies are the ones that will opt out.

These were talking points rather than a script. Or so it seemed. More on that below.

The affiliation instruction made the campaign easy for me and Claude to spot at first. Letters started arriving with “The Motley Fool Community” in the docket’s submitter field, and the tracker tagged them. As of today: 1,219 letters carry that label. The single biggest day was June 23, with 797 letters with that label.

The hunch

While processing these letters (Claude does the reading; I see the summaries and the standouts), we kept running into others that felt like the same campaign but lacked the label. Some said so outright in the text. “I am writing as an individual investor and a member of The Motley Fool Community.” One writer opened with “Link from Motley Fool.” Another simply wrote “Go Motley Fool.” One misspelled it as “Motly Fool,” which no submitter-field filter will ever catch.

A search of the letter bodies found 148 of these: letters that name The Motley Fool inside the text but never used the label. Those are campaign letters by their own admission, and we tag them as such.

But that still only tags people who said the words. What about Motley members who followed the campaign’s advice, wrote a letter, and never mentioned where they came from? I suspected there were many. Proving it required me to develop a model.

Teaching a model what a “Fool” sounds like

The idea is simple. Take the letters we know are Motley Fool letters, 1,367 of them (the labeled ones plus the 148 explicit mentions). Take a set of letters we know are clean: every individual letter filed before June 15. The campaign did not exist yet, so those 7,500 letters cannot be contaminated. Then let a model learn which words and phrases separate the two groups.

One important trick: we deleted every mention of “Motley Fool” from the training letters. Otherwise, the model just learns to spot the brand name, which a plain text search does already. We wanted it to learn the campaign’s voice, the themes and phrasings, so it could recognize a campaign letter that never says the “Motley Fool” name.

The model itself uses standard statistical methods, a logistic regression over word and phrase frequencies. It reads a letter and asks: does this use the vocabulary of the campaign or the vocabulary of ordinary retail letters? Then it outputs a probability.

Does it work? We tested it the honest way, with a holdout: hide a random 20% of the letters during training, then ask the model to classify the letters it has never seen. It separated campaign letters from pre-campaign letters almost perfectly (AUC of 0.987, for readers who want the number). At the strict threshold we actually use, about 98 of every 100 letters the model flags are true campaign letters.

The text nobody could see

The model also handed us a mystery. Its strongest signal was a set of sentences that recur in letter after letter:

“At its heart, investing is ownership. When you own a piece of a business, you deserve regular, transparent communication from that business. Reducing reporting requirements weakens the connection between companies and their owners.”

There were some additional companion text groups: “Less information rarely creates better-informed owners,” and a rebuttal of the cost-savings argument that begins “in an age of AI and increasingly efficient disclosure tools, even that point is debatable.” The ownership passage shows up in 262 letters in the campaign window, the AI line in 112, and both in exactly zero of the 7,500 pre-campaign letters.

Here is the mystery: these sentences appear nowhere in the June 15 post. We checked the post, we searched The Motley Fool’s public discussion boards, we searched the members-only premium boards. Nothing. Members were pasting a text that did not publicly exist.

One letter gave us a lead on solving the mystery. On July 6, a commenter wrote “I agree with the following from The Motley Fool:” and pasted the whole passage, ending with a dangling “Right?”. So, the text came from The Motley Fool through some channel we could not see.

The channel turned out to be sitting in my own inbox. I am a Motley Fool member, and on June 23 at 10:55 in the morning the Fool emailed its members a letter titled “Help us fight for investor transparency,” signed by co-founder David Gardner. (An apology to the Fool: I did not read it at the time. It was buried among the thousands of other marketing emails I receive.) Its body is the template, word for word: the ownership passage, the AI rebuttal, an “Imagine owning a business and getting updates from your managers only twice a year” riff, and a closing line that ends “the surprises are likely to be bigger, the reactions sharper, and the volatility greater. Right?”

That is where the dangling “Right?” came from, and 30 letters kept it. The email asked members to comment and mention the community in the Affiliation box. It never offered its own prose as a script. Members treated it as one anyway: 69 letters open with Gardner’s “a proposal is now on the table,” and 4 even borrowed “it’s time to dust off our bully pulpit,” which reads a little differently coming from an individual investor than from a co-founder.

To be clear about what this is and what it is not. Nothing here is hidden or improper. The Fool asked its members to identify themselves, in a docket where most campaigns leave no signature at all, and its email asked for respectful, personal comments. That so many members borrowed its words says more about busy lives than about manufactured sentiment: every one of these letters still required a person who agreed strongly enough to fill out a federal comment form and hit submit. But it also speaks to an incredibly close alignment with “Motley Fool” values.

I want to be precise about the order of events here, because it’s the part I find most satisfying. The model flagged these sentences as campaign fingerprints days before we knew the Gardner email existed. We then went looking for the source and found it. The prediction came first; the evidence confirmed it. Measuring the campaign takes nothing away from it. A reader of the docket should simply be able to tell the difference between thousands of letters that arrived independently and thousands that answered one call, and now they can.

Checking the model against the calendar

The Gardner email also solved a puzzle in the calendar. The labeled campaign has a distinctive shape in time: a trickle starting June 15, a huge spike on June 23, a fast decay after. Why would the biggest day land 8 days after the public post? Because June 23 is the day the Gardner email went out. The docket recorded roughly 1,700 campaign-shaped letters that same day. (A caution on all date counts: the SEC posts letters with a lag and we are still processing new ones, so this shape can shift as the docket fills in.)

For the direct-marketing nerds among us, this doubles as a clean test of channel power. The public article had a full week and produced 281 campaign letters. The email produced 2,510, including 1,746 on its first day, six times the article’s entire week. A founder’s email to members out-pulled the website post by roughly 9 to 1.

Which brings us to the test that convinced me the model works. If it were picking up some generic feature of late-June letters, its predictions would spread evenly across those weeks.

They do not. The predictions trace the campaign’s shape almost exactly. On June 23 the model flags 878 unlabeled letters, right beside the 797 labeled ones. And on June 22, a day when 3,365 individual letters arrived from an unrelated wave, it flags 3 Motley-related ones.

The result

Out of roughly 18,000 unlabeled individual letters filed between June 15 and July 6 (the docket as it stood on July 12, 2026, when I froze the model), the model flags 1,424 as high-confidence Motley Fool letters. Given the tested error rate, we expect maybe 25 to 40 of those to be false alarms.

So, the arithmetic looks like this: 1,219 letters that used the label, 148 that named the campaign in the text, and about 1,400 more that match its voice. Call it 2,800 letters. The visible campaign roughly doubles once you count the fingerprints, and the Motley Fool alone plausibly accounts for about 13% of all individual letters in its window as of that July 12 snapshot. (That share is a snapshot, not a running number: the campaign counts are frozen to July 12 while the docket keeps filling in, so the fraction drifts until the newer letters are scored the same way.)

One caveat. A flagged letter without the verbatim template is a probability judgment. It argues like the campaign, in the campaign’s window, but its writer might just be an independent soul who thinks in the same terms.

Take one June 23 letter the model scores at 0.97:

Owners, informed, the campaign’s exact frame. And still, nothing in those words proves the writer came from the campaign. That is why the tracker keeps two labels and never mixes them: officially tagged for letters that identify themselves, and predicted for letters the model flags. Both are now on the site, marked distinctly, and every new letter that arrives gets scored by the same frozen model.

The rest of June 23

The model does not sort letters into Fool and not-Fool. It reads each one and returns a probability. We draw a line and surface only the letters above it, and we set that line high, around 0.9, so that about 98 of every 100 letters we flag are the real thing. Precision, bought with caution.

June 23 shows what the caution costs. That is the day the Gardner email went out, and we identified roughly 1,700 Fool letters on it: about 800 that carried the label, and about 880 more that the model flags with confidence. About 9,500 individual letters reached the docket that day. So even on the campaign’s biggest day, the strict reading attributes under a fifth of the day’s mail to the Fool community.

Which raises the obvious question. Are the other 7,800 letters also Fool members who took the advice, wrote in their own words, and never named the source? Some of them are. A strict line misses the paraphrasers on purpose.

So we looked. We took the same frozen model, lowered the line from 0.9 down to 0.5, and watched what arrived. On June 23 the flag count climbs from about 880 to about 2,500. Add the labeled letters and the day moves from roughly 18% Fool to roughly 35%.

A lower line is not free, though, and two checks say that most of what it adds is ordinary retail opposition using similar vocabulary.

First, the letters sitting just below that 0.9 line still sound like the campaign. They carry its tells, the ownership framing and the “four times a year to two” arithmetic, at about four times the rate of a pre-campaign letter. The real paraphrased Fool lives in that band.

Second, keep lowering the line and the new letters stop looking special. They become hard to tell apart from the unrelated retail wave that hit on June 21 and 22, two days that brought thousands of letters and almost no Fool at all. Same anger, same words about transparency and quarterly reports, none of the campaign’s fingerprints.

Here is one of those letters, filed June 23, that the model scores at 0.49, just under the line:

Transparent, informed, better decisions. It uses the campaign’s words. It carries none of the campaign’s fingerprints, and nothing in it points back to the Fool.

So here is how June 23 breaks down. At the top, a solid Motley Fool core: letters that carry the label or the campaign’s exact template text. Just below it, a real group of members who took the Fool’s points and wrote them in their own words. And below that, a much larger crowd of investors who opposed the proposal on their own, and reached for the same everyday words about transparency and quarterly reporting.

That last group is where the measurement runs out. Once a member stops pasting the template and writes in plain words, the member’s letter looks exactly like a letter from a person who never heard of the Motley Fool. Both say keep quarterly reporting, we need transparency. Nothing is left in the text to tell the two apart, so no model and no threshold can tell them apart either. We can count the campaign’s core and its close paraphrasers. We cannot count the members who agreed with the Fool but wrote as themselves, because on paper they look the same as every other angry investor.

That makes our count a floor. Every letter we flag is one we are fairly sure about, and the members who agreed with the Fool but wrote in their own words are left out of it. The campaign’s true reach sits somewhere above what we can prove. And the floor may still rise: the docket is not full, letters dated June 24 and later are still posting, and each new batch can only add to the count.

So we did not pick one number. We built a slider. Move the threshold yourself and watch the labeled core hold while the uncertain tail grows. Flip on the total-received bar to see how much of the whole day any given reading can honestly claim.

Finally
One more filing deserves a mention. The Motley Fool not only mobilized its members; it also filed a formal comment letter of its own, as The Motley Fool Holdings, Inc., on July 6, the docket’s closing day. The corporate letter and the community’s 2,800 now sit in the same docket.

The tracker lives here. The full methodology and validation numbers are on the tracker’s methodology page, for anyone who wants to check the work.

Appendix: June 23 Motley Fool campaign email

For the record, the full text of the Gardner email that moved a docket, sent June 23, 2026 at 10:55am ET from fool@premiuminfo.fool.com, subject “Help us fight for investor transparency”:

Hello fellow investors,

Throughout our history, our company has stepped forward when important regulatory decisions affect individual investors. It’s time to dust off our bully pulpit and do it again.

A proposal is now on the table to allow companies to elect to reduce the number of public-company reports from four times a year to just two. We think that’s a mistake!

At its heart, investing is ownership. When you own a piece of a business, you deserve regular, transparent communication from that business. Reducing reporting requirements weakens the connection between companies and their owners.

Some argue that fewer reports would reduce costs. Maybe. Although in an age of AI and increasingly efficient disclosure tools, even that point is debatable. Others argue it would ease the pressure to manage quarter to quarter. But short-termism comes from how people react to information, not from the information itself. Taking the reports away doesn’t make anyone more patient. It just makes everyone less informed.

What isn’t debatable is that less information rarely creates better-informed owners.

Imagine owning a business and getting updates from your managers only twice a year. It would still run every day. You’d just know far less about how it was doing. That’s effectively what’s being proposed here. Companies will continue operating every day. Products will be launched. Customers will be won and lost. Strategies will succeed and fail. Yet under this proposal, owners would receive only half as many official updates about the businesses they own.

Less transparency doesn’t eliminate uncertainty. It increases it. And when information finally does arrive, the surprises are likely to be bigger, the reactions sharper, and the volatility greater. Right?

Back in 2000, the SEC opened a public comment period on a proposal called Regulation Fair Disclosure (Reg FD). Fools showed up in force. Our community submitted roughly 65% of all comment letters! The rule ultimately passed, and SEC Chair Arthur Levitt later visited Fool HQ to thank us. He directly credited the Fool Community as the critical force behind the outcome.

Twenty-six years ago, Fools helped win greater transparency for individual investors. Now we have an opportunity to help preserve it.

Comment now on the proposed Semiannual Reporting rule at SEC.gov.

In the “Affiliation Name” box, mention The Motley Fool Community. This signals to the SEC that your comment is part of a coordinated, informed community of individual investors. And please keep your comment respectful. These are public, official filings, and a thoughtful voice is the most persuasive one.

Thank you, and Fool on!

David Gardner
Co-Founder & Chief Rule Breaker
The Motley Fool

© Francine McKenna, The Digging Company LLC, 2026

Acquisitions are one way managers spend cash instead of paying it out to shareholders. Therefore, the theory implies managers of firms with unused borrowing power and large free cash flows are more likely to undertake low-benefit or even value-destroying mergers.

The theory predicts value increasing take-overs occur in response to breakdowns of internal control processes in firms with substantial free cash flow and organizational policies (including diversification programs) that are wasting resources. It predicts hostile takeovers, large increases in leverage, dismantlement of empires with few economies of scale or scope to give them economic purpose (for example, conglomerates), and much controversy as current managers object to loss of their jobs or the changes in organizational policies forced on them by threat of takeover.

Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers

Author(s): Michael C. Jensen Source: The American Economic Review, May, 1986, Vol. 76, No. 2, Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association (May, 1986), pp. 323-329 Published by: American Economic Association Stable URL: https://www.jstor.org/stable/1818789

I had a really nice little back and forth with Professor Stephen Bainbridge on a recent newsletter where he analyzed insider trading laws related to LeBron James’ decision to change teams.

My last post delved into the intricacies of insider trading law via a set of hypotheticals based on LeBron James signing with the NY Knicks.

Bainbridge on Corporations

Suppose LeBron James Traded on the Basis of His Free Agency Plans

The Athletic reports…

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14 days ago · 1 comment · Stephen Bainbridge

It elicited a response from Francine McKenna of the estimable Substack The Dig.

Ms. McKenna commented:

I’d love for you to go back and analyze the Sokol case with this framework

Prof. Bainbridge granted my wish.

Enjoy his revisit of a case of “usurpation of a corporate opportunity”, a great example of what can happen when corporations, especially controlled conglomerates, have too much cash, don’t pay dividends, run out of ideas, and employ unethical self-interested executives.

David Sokol pursued the acquisition of Lubrizol as an executive of Berkshire Hathaway, but not until he had first invested in the company himself. Professor Bainbridge concludes, as I did many years ago for Forbes:

Sokol learned of the Lubrizol opportunity in his capacity as a Berkshire Hathaway fiduciary. The investment bank brought him the acquisition proposal precisely because he had Buffett’s ear. He then used the information that had been entrusted to him for corporate purposes to make a private profit. Even if that’s an unusual form of corporate opportunity case, it still reeks of self-dealing.

Bainbridge on Corporations

Revisiting the David Sokol/Berkshire Hathaway "Insider Trading" Debate: Part I

My last post delved into the intricacies of insider trading law via a set of hypotheticals based on LeBron James signing with the NY Knicks…

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10 days ago · 1 like · Stephen Bainbridge

Given all the related-party transactions, partnerships and alliances, circular investments by customers in vendors, vendors in customers, and tech behemoths in everyone — public and private— there is likely plenty of potential self-dealing and bad dealmaking by the Magnificent 7 and in the AI data center construction ecosystem. That’s what we should be focused on when we scrutinize the billions in non-cash investment gains and losses recognized by some of the biggest names in tech.

The rest of this newsletter is behind the paywall. Won’t you consider subscribing?

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Today I’ll comment on an earlier Capital Account story about all the suggestions the Big Four accounting firms have “for Overhauling the PCAOB” and specifically on the re-proposed QC 1000 standard — which seems to have given the Big 4 everything they want.

I’ll also mention the new PCAOB Consultation initiative and what I think is wrong and could go “wronger” with this new service to the audit firms. Finally, I’ll have a comment about some of Kurt Hohl’s extracurricular activities. He’s the full-time, SEC Chief Accountant and fellow so-called “EY Mafia” trio member with Jim Logothetis and FASB Chair Richard Jones.

Today‘s newsletter is all behind the paywall.

But before I move to the other side, an update on the incredible interest, still growing, in the KPMG Australia fiasco. Even the views on one my comments on the inevitable insinuation of KPMG International into the mess are growing non-stop.

We are now up to nearly 60k views on a comment!

Lots of updates even in the last few days from Edmund Tadros at the Australian Financial Review. Gift link to story below.

It seems new KPMG Australia independent chairman Michael Ebeid is leading off with a bang, accusing a senator of false claims and of not checking with the firm first, despite “his involvement in aspects of the botched response to the firm’s audit leaks scandal”. Here’s a gift link to this story.

There are many, many other horrible developments. I highly recommend a subscription to Australian Financial Review and following Edmund Tadros, at least on LinkedIn for updates, including the growing clamor for an overhaul of regulation of the Big 4 in Australia.

Here’s a final comment of mine on another story from June 19:

On to the Big 4 and the PCAOB!

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Share The Dig

On May 5 2026, the SEC proposed providing public companies with the option to report their financials twice a year instead of four times (File S7-2026-15). It would swap the quarterly Form 10-Q for a new semi-annual Form 10-S. The proposal invited the public to write in and share their thoughts with the Commission. Thousands of people did before. The deadline is July 6th.

I built a tracker to read all the comment letters and provide the public with a real-time picture of the ongoing sentiment and discussion in the docket.

Having been engaged with accounting and finance research throughout my career, this project was quite fulfilling. It is a live example of two things at once. First, it shows how research actually gets done, day by day, with false starts, corrections, and a method that only looks tidy in hindsight. Second, it shows how careful data work can provide important input to the public debate in real time. Although the comment letters are already public, they are scattered across a docket that almost nobody scrolls to the bottom of. The amount of information is enormous. Turning that pile into something a person can see at a glance is the challenge.

The system

The first step is downloading the raw material — the actual letters from the SEC’s website. Without an API — a system for mass downloading that acts as a secure gateway so the SEC server shares only the specific data requested without exposing its entire database — which would have been helpful, we1 resorted to downloading the letters directly from the SEC’s website.

Working with Anthropic’s Claude (Cowork, typically the Opus family) to devise a system that does it automatically presented some challenges. But after a few days, we got into the rhythm. The system is not fully automated and does require some human intervention. Human intervention in the flow also allowed me to answer Claude’s questions, provide important input, and avoid tangents or directions that are unfruitful and will require reversal and more work later on.

Claude reads the SEC docket index, checks every letter’s URL against those already processed, and downloads any new ones. Claude’s ability to de-dupe (to eliminate duplicate data entries) is extraordinary, and those of us who work with data know that de-duping is a crucial part of data analysis. This is especially true for an evolving corpus that is updated multiple times a day and must be ingested in full or in part each time. In one instance, Claude flagged two letters filed the same day, with the same last name and a near-identical four-point argument: #218 Jennifer Simpson and #219 Mark Simpson. They differed in a single phrase, where one called the cost savings from semiannual reporting versus quarterly reporting “miniscule (sic)” and the other a “nothing burger.” Claude judged them related but distinct, proposed keeping them as two separate letters, and asked me to confirm.

Having Claude automate the fetch and also provide significant input into the initial download, in the way of identifying new letters, identifying the identities of the new letter writers, and alerting me to some interesting letters that are coming in the pipeline, is superb. As other commentators have written (e.g. Shiva Rajgopal and Robert Eccles), Claude is really a co-worker in the true sense of the word (more on that below). Even while handling the tedious job that’s been outsourced to it, Claude provides interesting input ahead of the update and alerts me to areas that require more attention in the second phase — the classification.

The classification

After we have the letters, we face the real challenge of classifying them. My initial task was to classify each letter’s stance on the question and identify the author. To do that, I needed to provide Claude with some instructions on how to approach each task. Later, after consulting with some of my colleagues, I added another classification: the rationale for each letter’s position.

The stance Evaluating the position that the letter takes is relatively straightforward. Claude and other AI models have generally been consistent and good, in line with human raters, in identifying the stance. Does this letter support the proposal? Does this letter oppose the proposal? Some are clear-cut. Some letters are on the fence; either they provide conditional support, meaning we like this, but it should be accompanied by other elements. A few examples show the range. Fardeen Irani supports the proposal outright, one of the few who do. James Hastings, a small investor, opposes it on the grounds that six months is too long to wait for bad news. Dakshesh Patel lands in the middle, backing the option only if it comes paired with a Taiwan-style monthly revenue disclosure.

The entity Classifying the identity of the letter writer appears on the surface to be easy. However, discussions with my colleague, Ohio State Professor Brian Monsen, who is more experienced in this process, suggest that sometimes it’s not that straightforward. Three letters illustrate this point.

On the docket, Alfredo Saloma is listed as a CEO, William Cronk as a CFO, and Layne Ivy as a CEO. That title comes from a box the submitter fills in on the SEC’s web form, and it sits next to the name on the docket page. It does not appear in the letters themselves. Click any of the three links, and you will find a plain retail investor writing about personal savings, with no company and no title in the text. That gap is the whole problem. One reading of each letter follows the docket title and files the writer as a company, while another follows the body and files an individual. And the docket title does not always mean what it says. Whether or not these are real businesses, none of the three writes on behalf of a company, and a label like “Fun & Done” reads more like a personal flourish than the name of a public issuer. Taking such a title at face value would be a mistake, so filing these three as individuals, where the majority vote landed, is the right call. I had to devise, together with Claude, a more detailed rubric to guide the classifiers through cases like this.

The rationale The rationale is the hardest of the three and the most interesting. Stance asks which side a letter takes. Rationale asks why, and one letter often gives several reasons. I added it after colleagues pointed out that the argument matters as much as the vote. So I built a list of about 20 argument families, each anchored to a question the SEC itself raised in the proposing release, and a letter can address one or more of them. Even human readers stop agreeing with each other on rationale, and the AI raters disagree more here than anywhere else. The disagreement is an honest measure of a harder task. While the rationales can be off and sometimes partial for a single letter, in aggregate, the rationales provide us with a good picture of where the debate lies.

How I decide the final answer In the past, when we needed to turn a pile of text into a label, we used research assistants. We gave the letters to several readers, had each classify independently, and took the majority. One reader is not enough, because one reader can be idiosyncratic or simply wrong. Majority rules is the gold standard.

I built the Claude AI raters the same way. Each letter is read three times for stance, three more for the writer’s entity, and three more for its rationale, for a total of nine reads. The three reads are not identical, because I give each a different set of rules. One reads plainly. One reads like a literalist who credits only what is on the page. One reads like a skeptic hunting for the catch. The final label is the majority vote, and because there are three votes, I can also report how strongly they agreed, whether unanimous, two-to-one, or split. I use Fleiss’ kappa for that agreement rate.

One overarching rule I implemented: the vote decides, and I do not override it, even when I could have a different opinion. When a letter comes from someone recognizable, the temptation is to skip the reading and type the label. That shortcut is the very bias the vote exists to remove. Recall the three investors listed on the docket with executive titles. The reads that followed the body of each letter kept them as individuals, the read that followed the docket title disagreed, and the majority sided with the substance. The dissent stayed in the record.

Validation Two more checks are worth mentioning. I gave 20 letters to human raters and posted the comparison analysis, so anyone can see how the humans fared against the machine. Humans disagree with each other, too, so the test I care about is whether the AI is about as consistent as they are. The yardstick is kappa, which measures agreement after removing the overlap two readers would reach by luck, so that 1.0 is perfect and 0 is no better than chance. On stance, the answer is yes, because stance is easy to conceptualize even when a single letter is a close call: the three human experts agree at a Fleiss’ kappa of 0.82, and the strong models match the human labels at a Cohen’s kappa of about 0.85, running as high as 0.92, reading stance about as well as the experts do. Entity is harder for everyone, the experts agreeing only at 0.67 and the models falling to between 0.34 and 0.59. Rationale is harder still.

I also ran every letter through 14 different AI models (for example, Claude, GPT-5.5, Gemini, and open-weight models such as Mistral and Gemma), adding new ones as they appear (I added Fable 5 on July 2, the morning it re-launched). When a label survives three rubrics, a second unrelated model, and a human spot-check, it is robust.

The collaboration

Although I had some experience working with AI prior to this project, it was in the realm of teaching and administration. I didn’t really take AI seriously as a research topic until this idea came to mind.

Running a project with an AI assistant day after day is closer to running a small operation with one very fast, very literal colleague than to using a piece of software. The fast colleague classifies 47 new letters in the time it takes me to read one. The literal colleague will also, if I let it, confidently mislabel a retiree as a corporate issuer because the signature line says “CEO.” Both traits are constant. The whole discipline is building a process that uses the speed and contains the literalism.

The process relies on human decision points (gates). The daily iterative cycle pauses at fixed checkpoints and waits for me to approve before it downloads a new batch of letters, before it classifies them, and before it pushes anything to the public site. The machine supplies the throughput, while I guard the checkpoints. A version of this project without gates would be faster but worse, because the AI judgments nobody checks are the ones that quietly go wrong. And there is a risk that the wrong judgments will accumulate and snowball over time.

The process must have a paper trail. At the end of every session, Claude writes a running status log and a handoff note, because a project spanning dozens of days cannot live in memory. I direct what goes into that record and review it, and it has improved the work considerably. It also turned out to be necessary for a practical reason: managing the AI across different sessions, and across different computers, takes real work on the human side, and the written trail is what keeps that manageable. The paper trail is how thinking is preserved.

The way I gather the letters also improved over time, and that is part of the human-AI collaboration. At first, the download was slow and would sometimes get stuck, showing the same docket page over and over instead of moving forward. We fixed it by having the program move through the pages the way a person would, one click at a time. Later, as the docket grew, I added a step that checks the full list of letters against what I already have, so nothing slips through. The first time that check ran, it caught three letters that the earlier method had missed. None of this was a dramatic failure. It is the ordinary iterative way a process like this becomes more reliable: you find the weak spot, and you fix it.

What does the docket say?

As of July 3, the public verdict on the semi-annual reporting is very lopsided. Of the 8,011 letters classified, 7,925 oppose the proposal outright and 34 support it. The remaining 52 are conditional: they back the change, or resist it, only if it comes with specific safeguards. Add the organized form-letter campaigns (here is an example), and the opposition runs past 67,000 letters. The Commission proposed to lighten the reporting burden. The people, it turns out, do not want the burden to be lighter.

Who writes matters as much as what they write. The corpus is mostly individual investors, but it also holds practicing CPAs (for example Charles Gallo and Stephanie Micinski, who identify as CPAs in their own letters), a former Fortune 500 finance executive, a software developer in Finland who builds financial-transparency tools, a UCLA law professor, and the first audit firm to file, Baker Tilly, which supports the option in principle while flagging the reliability risk of a hybrid schedule. The academics do not line up either, and some engage the same question directly. Thomas Bourveau argues the market-failure case for mandatory quarterly reporting, including its information externalities, is empirically weak. Elizabeth Demers and her coauthors read that same issue the other way, finding that quarterly earnings announcements throw off large information spillovers to other firms, a semi-public good the market would lose. The split runs through the proposal as a whole: a group led by K. Ramesh supports the optional regime, citing research that prices react to earnings announcements more than to the 10-Q filing itself, while the Auditing Section of the American Accounting Association opposes it.

The arguments repeat in a recognizable set. Retail investors say six months is too long to wait for bad news, and that quarterly numbers are the one thing they can rely on against institutions with better data (Mary Patten). Several CPAs argue that less frequent reporting leaves more room for fraud and accounting drift (Harvey Summers, a former auditor). A common line holds that the cost savings are obsolete, since modern reporting is largely automated (Morten Hansen). Another warns of a race to the bottom, where “optional” quietly becomes the floor (Jason Couchman).

A handful of letters take no position at all and simply ask for more time, and who they are is the interesting part. Better Markets, a financial-reform advocacy group, and SIFMA, the leading broker-dealer and asset-manager association, sit on opposite sides of most fights, yet both requested a 60-day extension, as did a joint letter from three asset-management associations. Their reason is the same: the SEC has two other major proposals out for comment at the same time , and the overlapping windows leave too little time to review them all together. Better Markets adds that the last time the SEC floated semi-annual reporting it allowed 120 days for a 30-page proposal, while this one runs past 250 pages on a shorter clock. Speaking of 250 - Happy Fourth of July to all 🇺🇸 - and that was one of the other arguments SIFMA raised. As of this writing the SEC has not answered the extension requests.

It is worth mentioning that this is a population that self-selects into commenting on an SEC accounting rule. These are people who care enough to write, and the corpus records what they argue. It is not a poll of investors, and it says little about the otherwise quiet majority of public company shareholders and other stakeholders.

The 2018 docket

The question of reducing public company reporting burdens is not new. In 2018, the SEC floated essentially the same idea, and I built a mirror tracker for that older docket (S7-26-18) and classified all of it the same way. (Thanks to Michelle Leder for reminding me)

The contrast with today is stark. The 2018 proposal drew about 89 comments, and the file was dominated by institutions and firms: the large audit firms, pension funds like CalPERS, the CFA Institute, and business groups. This time the docket holds more than 8,000 letters, most of them from individual investors. The same policy question, floated seven years apart, drew a boardroom in 2018 and a crowd in 2026.

Having both dockets side by side also lets me spot repeat commenters, the people and organizations who wrote in both times. A handful did: the analyst Jack Ciesielski (2026, 2018), CalPERS (2026, 2018), the CFA Institute (2026, 2018), the CFO of Arthur J. Gallagher (2026, 2018), and FCLTGlobal (2026, 2018), which moved from a conditional position in 2018 to outright support in 2026. At my request, Claude keeps these repeat commenters on a watch list and checks every new batch of letters against the 2018 roster, telling me who has reappeared and who has not. So far, much of the 2018 institutional bloc, including the big audit firms and the major governance groups, is silent in 2026, and that absence is worth watching as the deadline nears.

The silent dockets

The semiannual reporting proposal was not the SEC’s only one in May 2026. Two companion releases, S7-2026-17and S7-2026-18, were issued two weeks later, on May 19. The “Filer Status” proposal (S7-2026-18) would ease the rules for smaller and newly public companies at once. It raises the threshold for the largest filer category, opens a longer reporting on-ramp for recent IPOs, and, at its center, would drop the requirement that these companies have an outside auditor attest to their internal controls. In total, there are 11 proposals wrapped into over 300 pages in a single file. I also examined this docket, have prepared the machinery for a tracker as well for when it heats up if it does, but it’s not yet published.

The two proposal dockets differ dramatically in the structure of the proposals. A semiannual reporting comment letter gets one stance. A filer-status comment letter gets a stance on each element it touches, across the eleven I track. That’s because a writer can back the longer IPO on-ramp while fighting the audit-attestation rollback in the same paragraph. Classifying 27 of those is slower than classifying 200 of the semiannual kind.

The Semiannual and Filer Status dockets could not look less alike. The semiannual docket drew more than 8,000 letters and pointed almost all of them the same way. The filer status docket has drawn so far only 27 (as of July 3, 2026). And those 27 do not agree: 10 support the changes, 9 oppose them, and the rest sit mixed, conditional, or to the side.

While the semiannual corpus is mostly retail investors making a handful of recurring arguments, the filer status docket runs on specialists. The highest-signal letter is a joint statement from the “Shadow SEC”, five of the most prominent securities-law scholars in the country, calling the package “deregulation gone wild” and demanding that each piece get its own rulemaking. A CFO predicts the large audit firms will fight the attestation rollback.

As mentioned, the Filer Status proposal, as well as the registered offering reform, did not attract a fraction of the attention that the semiannual proposal did. The silence is itself worth noting. Although the implications are as important and as vast as the semiannual proposal, the semiannual proposal has attracted most of the attention. Did the semiannual proposal “fatigue” the public from responding to the others? The three extension requests suggest that the relatively busy proposal schedule might prevent the public from engaging in deep discussion with each of the proposals

In conclusion

I hope the tracker encourages the public to engage in the conversation while the comment window is open, rather than after it closes. A live, public count of who is saying what, on which grounds, is a good way to start that conversation.

From a researcher perspective, this project shows how much potential AI holds to push into new frontiers. It is quite interesting to test how well language models classify regulatory text at scale, with their disagreements measured rather than hidden. Every letter in this corpus is a small experiment in whether three rubrics and multiple AI models can agree on what a stranger meant. And how do they fare against humans. This is ground for more research on this corpus, and on others.

The comment deadline is July 6. The tracker will keep pulling until the docket goes quiet, and probably a while after, watching for the backlog to clear. I will keep holding the gates.

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Buy the book at Philadelphia’s own Head House Books:

From the book’s Epilogue (Page 204-205):

I know many other civil servants are out there right now who are grappling with similar issues, whether it is a team of tech operatives working to dismantle their agency’s systems and contracts or political leadership upending rules and structures to undermine the legal functions of their department. They find themselves in the unenviable position of having to decide how to respond to the destructive misuse of power, even as their careers and livelihoods hang in the balance. It is with these individuals in mind that I share a few of the lessons I learned during the dismantling of USAID, lessons I wish I had learned and heeded earlier in my journey:

1. Make sure everything is in writing.

2. Insist on educating leadership on your function.

3. Reaffirm your oath of office.

4. Ask questions and seek clarification/

5. Document and save everything.

6. Avoid isolation.

7. Uphold nonpartisanship.

8. Use protected reporting channels.

9. Maintain your routines.

10. Don’t wait for someone else to act.

For more stories of whistleblowers in accounting and audit, you can view/read:

© Francine McKenna, The Digging Company LLC, 2026

It was co-founded by veteran DC Bloomberg reporters Jesse Westbrook — who left in 2024 — and Robert Schmidt and now includes former DC WSJ reporter Ryan Tracy.

We dig into complicated regulations and the battles they provoke at the Securities and Exchange Commission, Federal Reserve, Consumer Financial Protection Bureau and other federal agencies. We also closely follow congressional financial services committees and track efforts to influence regulators’ decisions. Our aim is to chronicle every twist and turn in the process, keeping our readers ahead on key developments and emerging issues.

If you think The Dig is expensive that’s nothing compared to Capitol Account. Instead of my audience of well-paid Big 4 folks and the academics and regulators who try to keep up with them, Capitol Account’s target audience is lawyers and lobbyists and its subscription cost is commensurately pricey.

That’s one reason why I have been surprised and pleased by its unexpected focus on what’s going on at the PCAOB. There have been multiple “inside the beltway” stories and profiles in the last four years as the SEC Gensler era came to a close and the election of Donald Trump and the appointment of not-a-fan-of-the-PCAOB-or-SOX SEC Chair Paul Atkins thrust the PCAOB into the news again.

Capitol Account

Atkins Plotting Major PCAOB Overhaul

Last week’s ouster of Chair Erica Williams was only the first of many major changes in store for the PCAOB. Though the extent of the overhaul is still a matter of deliberation and debate, the new SEC chairman hasn’t exactly hidden his desire to significantly scale back the audit regulator. And sources say…

Read more

a year ago · Robert Schmidt

Capitol Account

Atkins' PCAOB Revamp Gathers Steam

The SEC has set an Aug. 25 deadline for people interested in applying for seats on the PCAOB’s five-member board. But the process is moving more quickly: According to sources, the SEC’s top accounting official has told people in recent days that he has already compiled a slate of candidates for…

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a year ago · 2 likes · Robert Schmidt

Capitol Account

PCAOB Revamp Begins to Take Shape

The PCAOB has been girding for a shake-up since Republicans took back control of Washington. With today’s SEC approval of the regulator’s slimmed-down 2026 budget, the tumult has officially arrived…

Read more

6 months ago · 2 likes · Robert Schmidt

An earlier story about the fight over the PCAOB’s future from April 2025 is, according to Substack metrics, one of Capitol Account’s most popular.

After Atkins fired her, Erica Williams was also interviewed by Capitol Account:

Capitol Account

Exit Interview: Erica Williams on Keeping the PCAOB `Empowered'

Sponsored by the Financial Services Forum…

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a year ago · 2 likes · Robert Schmidt

Capitol Account is the only media publication that has interviewed new PCAOB Chairman Jim Logothetis. The stories I have linked to are less than half of all of the ones Capitol Account has published about the ongoing saga at the PCAOB.

The largest global public accounting firms, and that industry’s regulators and standard-setters, are not quite general business news even when there are major scandals and frauds, but they do rise to that level occasionally. The industry is, however, a focal point for lots of other ancillary legal, consulting, and lobbying money spent both in attack and defense of their activities.

Apparently, among a subset of Capitol Account readers there is high interest in the PCAOB. For The Dig, interest in these topics is a given.

Today, behind the paywall, I’ll comment on two recent stories about the PCAOB in Capital Account:

· An exclusive interview with Jim Logothetis

· A story about the investigation of new PCAOB Enforcement Chief George Demos more than a decade ago on allegations that he accepted an illegal campaign contribution

My commentary on a Capital Account story about all the suggestions the Big Four accounting firms have for “Overhauling the PCAOB” and the re-proposed QC 1000 standard — which seems to have given the Big 4 everything they want — will be addressed in a future newsletter.

Read more

It’s midweek, midsummer, nearly the summer solstice.

Here are a few stories I am noting.

I teased on LinkedIn that I went downtown Chicago to meet with Maura Webber Sadovi to talk about a little of everything back on June 3.

Her story came out on June 12, just in time to tie my main comments to the SpaceX IPO.

Read the whole thing here.

McKenna, who takes her critical eye to the accounting and auditing industry in her column titled The Dig which is on Substack, fervently believes companies should not be publicly listed and taking money from the public and retail investors unless they are absolutely “ready for prime time.” That means they’ve established strong accounting and financial infrastructure, strong IT systems, and strong internal controls, she told CFO Dive in an interview last week.

“If you’re just promoting it as an economic win and not worried about how [the company] works over time, you are really abdicating your responsibility as a regulator or an actor in the financial markets,” said McKenna, who sees finance chiefs as key financial market gatekeepers. “CFOs need to be thinking about their role as protectors or preservers of the integrity of the financial reporting of the company and to stand up to the CEOs, stand up to COOs and stand up to the board.”

Share The Dig

Speaking of CFOs who need to be “thinking about their role as protectors or preservers of the integrity of the financial reporting of the company” I wrote on June 12 about the SpaceX IPO and the things I was thinking about, including the PwC-centric challenged career of its CFO. Amazing the stuff you find when you can go back far enough.

People liked the post! They really liked it!

FT Alphaville linked to it, using The Dig as the piece it pointed to with regard to SpaceX risk factors.

Then there’s SpaceX. Its route to market has been longer than any of the above. Burning private capital has already delivered us reusable rocket ships, sat-phones, and a race-bait website that might one day develop artificial superintelligence. Public life might add orbital data centres and planetary colonisation. Maybe there’s more reason than usual for paying attention to the 38 pages of risk factors in its S-1 filing. Maybe there’s more reason than usual to trust estimates stretching to 2045 that justify its $1.75tn valuation. Corporate survival usually means transmogrification, but, as a mature business with added moonshots, SpaceX might be different.

One of my journalism heroes and a really lovely person, Diana Henriques of Madoff bestseller “Wizard of Lies” fame, gave me a shoutout on Bluesky.

And the legendary Herb Greenberg was also complimentary, while also noting that he and I talked a bit about our slightly different styles with regard to invocation of the “f” word.

▶In response to my latest report the other day, headlined, “CoreWeave Capers – the Jane Street Edition,” my friend Francine McKenna, who writes The Dig, wrote…

“This did not go where I thought it was going.”

Francine, who has a strong focus on the world of accounting, thought my bottom line would have been what I thought the report implied: That Jane Street’s purchase of $1 billion in CoreWeave $CRWV stock – as part of a $6 billion cloud agreement – was done to pump the stock. And in turn, helped Magnetar sell more CoreWeave stock than ever, before Jane Street itself dumped the $1 billion it had just bought, if not more of its existing holdings.

That got me to thinking… maybe, for today’s market, I’m too old school…

▶Moving on, my thoughts on the SpaceX IPO: I’m intentionally not writing on it because there’s nothing that I could say that hasn’t already been said. But if you’re still interested, and not already SpaceX-d out, check out this full review of the risk factors and round-up of roundups by Francine at The Dig.

Herb Greenberg | On the Street

The Wrap – On Calling Out Fraud And Other 'Stuff'

▶In response to my latest report the other day, headlined, “CoreWeave Capers – the Jane Street Edition,” my friend Francine McKenna, who writes The Dig, wrote…

Read more

a month ago · 15 likes · Herb Greenberg

My friend and frequent collaborator Olga Usvyatsky of Deep Quarry has been writing a lot! We collaborate and we also do other things separately, kind of an open relationship, and she picked up on the growing interest in SEC comment letters. I give her — and to some extent our joint SpaceX work this past week — all the credit!

Olga is very good at what she does!

Specifically Olga wrote:

In the past several weeks, Francine McKenna and I spent considerable time analyzing SpaceX IPO filings, including an analysis of changes between the confidential Draft Registration Statement (DRS) and subsequent public filings on Form S-1, under the presumption that some of the disclosure changes could be attributed to SEC review of the SpaceX registration filings.

Both Francine and I may say more about SpaceX accounting in the future – see also our additional posts here and here. In this post, however, I wanted to step back and look at a different corner of the SEC comment-letter process – namely, routine reviews of periodic filings such as 10-Ks and 10-Qs.

SEC comment letter activity, at least as measured by the number of letters publicly released on EDGAR, remained materially below historical levels in the past year. That decline appeared to be attributable to slower review activity following the October–November 2025 government shutdown and staffing disruptions within the Division of Corporation Finance, which led to fewer comment letters issued and even fewer disseminated.

Deep Quarry

Long SEC Reviews Quarterly Update # 7

What are unresolved SEC comments, and why are they important…

Read more

3 months ago · 9 likes · Olga Usvyatsky

The prior trend of declining number of SEC comment letters released on EDGAR continued into the first half of 2026, with only 8 and 6 conversations with a closing letter released in March and April, respectively, and 19 conversations released in May 2026, according to my analysis of data by Audit Analytics.

Source: Ideagen Audit Analytics Comment Letters Database, analysis by Deep Quarry.

However, several recent filings disclosed restatements and internal control over financial reporting (ICFR) weaknesses directly tied to the SEC comment letter review process, suggesting that SEC scrutiny is still ongoing behind the scenes. Importantly, the underlying SEC correspondence for some of those cases has not yet been released on EDGAR. In other words, even though investors are still seeing fewer comment letters on EDGAR, we can see traces of SEC enforcement and disclosure oversight elsewhere in public filings.

Read the rest at Deep Quarry.

Deep Quarry

Recent SEC Comment Letters Point to Continued Accounting Scrutiny

In the past several weeks, Francine McKenna and I spent considerable time analyzing SpaceX IPO filings, including an analysis of changes between the confidential Draft Registration Statement (DRS) and subsequent public filings on Form S-1, under the presumption that some of the disclosure changes could be attributed to SEC review of the SpaceX registration filings…

Read more

a month ago · Olga Usvyatsky

Finally, my friend and co-author Professor Tzachi Zach at Ohio State has been closely following the comment letter activity related to the SEC’s proposal to allow optional semi-annual filing in place of quarterly reporting.

His findings are fascinating!

With about 12 more business days to go before the comment deadline - July 6 - this is how the sentiment looks:

You can see more of his commentary by following the live tracker here. We both think we will see a big push by the heavyweights in favor at the last minute.

And a final reminder:

This is not the first time the SEC has revisited reporting frequency. In 2018 the Commission issued a request for comment on the same question — earnings releases and the frequency of quarterly reporting (Release 33-10588, File No. S7-26-18). That one solicited public input without proposing a specific rule, unlike the current formal proposal. I built a companion tracker of the 2018 comment letters, available here.

Comments, suggestions, or corrections welcome — send feedback here or email zach.7@osu.edu.

I wrote about that original proposal during Trump’s first term while at MarketWatch. (Gift link)

Should the U.S. move to a six-month financial reporting calendar from the current quarterly one as President Donald Trump mooted in an early Friday tweet?

Not really, according to many investors and analysts, who argue that shareholders need more disclosure from the companies they invest in and not less. And while many executives — Elon Musk, anyone? — argue that the burden of striving to meet quarterly estimates can lead to short-termism on the part of managers and shareholders, there’s no guarantee that a different reporting schedule would change that.

“If the charge is that companies are managing for short-term expectations, what will be the difference between a three-month cycle and a six-month cycle? Nothing,” said Leigh Drogen, founder and chief executive of Estimize, a platform that crowdsources earnings estimates and economic forecasts.

“A six-month cycle will also lead to increased volatility given less access to hard information regarding the performance of companies,” Drogen said.

© Francine McKenna, The Digging Company LLC, 2026

Introduction

MarketWatch’s MW Brett Arends does a very good SpaceX “red flags” preview column. In it he mentions many of the obvious things like the fact that SpaceX loses a lot of money. He also mentions another funny strange, not funny ha ha, thing:

In case you missed it, jumbo Wall Street bank JPMorgan had a stock analyst covering Musk’s other publicly traded company, Tesla, who was resolutely bearish. By an absolutely amazing coincidence, JPMorgan a month ago suddenly reallocated that analyst. His replacement initiated coverage of Tesla with a target price more than three times as high. And Musk cut JPMorgan in on the IPO. JPMorgan declined to comment.

Nothing to see here, folks. Move along.

In December 2024:

JPMorgan Chase closed the book on its yearslong legal pursuit of Tesla on Friday, abandoning a $162.2 million lawsuit it filed in 2021 alleging the carmaker reneged on a stock warrant deal after the bank lowered the strike price.

A one-page court filing noted that the legal dispute between the firms was “voluntarily dismissed with prejudice,” meaning neither firm can refile the claims. Settlement details were not disclosed.

“JPMorgan and Tesla have decided to enter into a new commercial relationship and settle the outstanding disputes between the companies,” a JPMorgan spokesperson told Banking Dive via email. “This is a good outcome for all and we look forward to working together.”

Yeah, that sorts and lines up with what FT Alphaville said:

“Getting a lot of banks involved in an IPO has a side benefit: it subdues the potential for criticism. Every firm brought into the tent by an issuer, beyond a vested interest in being nice, has to abide by the rules. In the US, these include a blackout period for publishing research of 40 days for lead underwriters and 25 days for everyone else.

With SpaceX using 23 banks for its capital raise, independent research about the record-breaking float has been very hard to come by. That alone is our reason to raise awareness of a couple of notes from the team at Morningstar.”

Reminds me of the time many years ago that one of the Big 4, one of the remaining firms I had not worked for yet, wanted to hire me for a top strategy role. I saw it for what it was: a ploy to get me to stop writing. Never looked back.

What do I look for in a prospectus?

During my tenure at MarketWatch, I drafted or contributed to a lot of “5 Things to Watch For” in the various IPOs that occurred. I was charged with coming up with the accounting/audit angles no one else would talk about.

So, there’s been a lot written about the SpaceX IPO but here are some questions I apply when making a quick read of a long prospectus:

1. Risk factors – Look for unusual issues of controls including weaknesses, related parties, trends on revenue, going concern.

2. Auditors’ opinion — anything but boiler plate? More than one auditor?

3. Losses? What is cash position?

   • After Theranos and WeWork, always look to see if they discuss how badly they need the IPO fundraise to keep going.

4. Look for dual or complex share structure to assess control landscape.

5. Any cyber security breaches in past and ongoing risk?

   • JPM says its #1 risk is cyber-risk

6. Any unusual investments or assets not characteristic for industry or business model?

7. Any unusual revenue recognition not consistent with others in industry or especially others audited by same firm with same business model?

   See Uber vs. Lyft https://www.marketwatch.com/story/uber-received-more-scrutiny-from-the-sec-than-lyft-during-the-ipo-process-2019-07-11

8. Any open SEC or other regulatory investigation? This is a given for any Musk-controlled company.

9. Any previous legal or regulatory issues including significant pending litigation? It wouldn’t be a Musk company without it.

10. Any issues with implementation of financial reporting software – ERP or other application critical for business like inventory in a retail or consumer products company?

SpaceX admits in the risk factors to its prospectus it has no idea when it will ever be profitable.

We have a history of net losses and may not achieve profitability in the future.

We incurred net losses of $(4,937) million and $(4,628) million for the years ended December 31, 2025 and 2023, respectively, and a net loss of $(4,276) million for the three months ended March 31, 2026. We may not achieve or, if achieved, sustain profitability in the future. As of March 31, 2026, we had an accumulated deficit of $41,311 million. While we have experienced significant growth in revenue over the last three years, we cannot predict whether we will maintain this level of growth or when we will achieve profitability again.

Cash balances have been artificially propped up by massive borrowing.

Why does SpaceX need this IPO? Like always Elon Musk says a lot of things but the reality is often something very different. Via the Motorhead newsletter:

When Jamie Dimon, JPMorgan’s iconic CEO, asked Elon Musk at an investor meeting last week why SpaceX is going public now, Musk smiled and replied, “We’re embarking on a massive new growth phase, and we need capital for that.”

This isn’t exactly true. In fact, it’s as close to a lie as one can get without lying, given that the $75 billion of funds that will be raised by SpaceX’s IPO will go to pay down liabilities linked to Musk’s failed AI start-up, xAI:

• xAI, was burning cash at a rate of over $1 billion per month last year, with minimal revenue. While segment cash flows aren’t disclosed, the EBITDA less capex in SpaceX’s AI division last year came to a $15.5 billion deficit.

Motorhead

SpaceX IPO Looks Wobbly & Early Unlocked Selling Could Dampen the Passive Squeeze

High-flying IPO, high-flying hype: Reuters reported that the SpaceX IPO is 3.3x oversubscribed as of yesterday, but I wouldn’t believe a word from anyone buying or selling into this IPO. When Google announces it will pay $920 million per month to rent xAI’s idle GPU capacity just 5 trading days before the IPO, you can smell the desperation…

Read more

a month ago · 41 likes · 5 comments · Motorhead

Much has been written about how Musk controls it all. From the New York Times (gift link):

In January, SpaceX granted Elon Musk, its founder and chief executive, a pay package that eventually totaled 1.3 billion restricted shares. The award was contingent on the rocket company’s establishing a colony on Mars with one million inhabitants and launching high-powered data centers into space.

Mr. Musk has not achieved those goals. Even so, he can vote those 1.3 billion shares in shareholder decisions, according to SpaceX’s offering prospectus, which was released on Wednesday. In other words, the company is allowing Mr. Musk to vote with shares he has not yet earned.

“I have never heard of this,” said Ann Lipton, a law professor at the University of Colorado, Boulder. “He basically found a way to hack the normal rules of corporate organization.”

The restricted shares weren’t the only unusual corporate governance arrangement that SpaceX revealed as it prepares what could be the largest initial public offering ever. The company, which builds rockets and operates the Starlink satellite internet service, has valued itself at more than $1.25 trillion, and its I.P.O. — which is set to happen as soon as next month — is likely to create a bonanza for Wall Street, Silicon Valley and, of course, Mr. Musk.

Economist and former NYT columnist Paul Krugman is no fan:

Yesterday I took a short trip. I began with a ride on the local Hyperloop, which ran through a tunnel dug by Boring Company. Then I used my neural implant to summon a fully self-driving Tesla robotaxi. While enroute I read the latest news from the Mars colony.

OK, none of that actually happened, because those products don’t exist. There are no working Hyperloops. The Boring Company has not dug any commercial tunnels. Tesla has a few self-driving — though not fully self-driving — taxis in Austin and nowhere else. (Google’s Waymo driverless taxis are operational in several major hubs.) Neuralink, which is purportedly pioneering brain implants, has tested its products in a handful of patients but done no more than that. And of course there is no Mars colony: there have been no manned flights to Mars, nor the prospect of any for the foreseeable future.

Yet at various points over the past decade Elon Musk promised that each of these services would be available by 2025 if not sooner.

Paul Krugman

Elon Musk, Human Ponzi Scheme

Yesterday I took a short trip. I began with a ride on the local Hyperloop, which ran through a tunnel dug by Boring Company. Then I used my neural implant to summon a fully self-driving Tesla robotaxi. While enroute I read the latest news from the Mars colony…

Read more

a month ago · 390 likes · 84 comments · Paul Krugman

My friend and frequent collaborator Olga Usvyatsky and I wrote about the progression of SpaceX draft registration statements and some of the comments the SEC may have made that drove the changes along the way, including with regard to alternative financial, performance, and operational metrics. We also wrote about the leaks that drove media commentary:

We heard our work was used in a class at Univ. of Texas Austin this week!

📜 We'll quickly cover some of the context before the IPO, including confidential S-1s, Amended S-1s, amendments to amendments, the comment letters not yet released (thanks to some excellent work by Francine McKenna and Olga Usvyatsky), discuss related issues, including shareholder rights and the role of Index Funds (building off work by Matt Levine) and cover an useful perspective from Peter Perri III (whose recent work exposed me to the *amendment* to the amended S-1) and bring in some commentary from our current MPA students.

In preparation for the first day of trading on June 12 — despite Senator Warren’s last minute efforts to appeal to SEC Chair Atkins to stop it — I wanted to pick off a few more items in the Prospectus that interest me.

After the paywall I’ll talk about the CFO, the material weaknesses, the auditors’ opinion, and the Audit Committee.

Read more

The crisis for KPMG, not only in Australia, just got worse.

I wrote about the preliminary reports here.

On June 7, AFR’s Edmund Tadros published, “KPMG’s audit scandal could be worse than PwC’s tax leaks. Here’s why”.

Tadros’ article describes a channel switching case — working with a client on one service such as internal audit and wanting to switch to another that is in conflict from independence perspective. Since the Sarbanes-Oxley Act of 2002, U.S. listed companies cannot hire the external auditor to do internal audit co-sourcing or outsourcing, a reaction to Arthur Andersen’s double duty for Enron.

But the desire of the global public accounting firms to switch service channels happens all the time, especially in this era of emphasis on growing Advisory and Tax over Audit. Audit has been commoditized once again and low growth for a while.

The PCAOB had an enforcement action against PwC not too long ago when PwC Tax partners wanted the firm to resign an audit so they could create a business alliance with the client and sell tax software and implementation services together. The problem was the highest level of the firm was negotiating this deal while still signing the audit.

How was PwC caught? By a PCAOB inspection.

Is it making more sense why the Big 4 want the retired EY partner -led SEC Chief Accountant’s Office and PCAOB to relax auditor independence rules and refocus PCAOB inspections away from enforcing independence standards and toward helping the firms “improve audit quality”?

I wrote about the PwC channel-switching case, in two parts, given how egregious it was.

AFR’s Tadros also left an open-ended question in his June 7 article:

KPMG all over the world had, and has, a culture of using confidential client information inappropriately and at times illegally. Just look at the KPMG-PCAOB regulatory data theft scandal in the U.S. of 2018-2019 where senior partners of the firm were found, civilly and criminally, to have used confidential PCAOB inspection data stolen from the regulator

• to subvert the PCAOB inspection process,

• to gain a competitive edge in winning the BBVA audit tender, and

• to pass the stolen confidential data to a third party service provider — Palantir — which was engaged to build a model that could predict PCAOB inspection selections. (Palantir failed.)

But KPMG is not the only Big 4 firm that has been caught using confidential client information to benefit its own business interests, subvert the regulatory process, or to gain a competitive edge on behalf of clients over regulators.

I wrote for Forbes in August 2012:

Back in October 2004, New York State and the Federal Reserve Bank of New York issued an enforcement order to Standard Chartered Bank requiring it to “adopt sound” Bank Secrecy Act/Anti-Money Laundering practices with respect to foreign bank correspondent accounts. That order also required the bank to hire an independent consultant who would report periodically on the bank’s progress to the regulators and conduct a retrospective transaction review, or “look back” review, covering the period July 2002 through October 2004.

Deloitte was chosen as the “independent” consultant. But it didn’t take very long for Deloitte to become more than just an “independent” consultant hired to help it fix its BSA/AML issues.

According to the results of a New York DFS investigation published yesterday, before long Deloitte had morphed from “independent” consultant, in service to the regulators, to “service provider”. As a “service provider” Deloitte apparently aided and abetted the bank’s continued illegal activities by sharing confidential information about other clients’ similar illegal activities and “watering down” reports to the regulators.

There’s big temptation for Deloitte or any of the Big Four audit firms who get the growing number of plum “governance, risk and compliance” roles as supposedly “independent” consultants to the banks. There are so many consent decrees and settlement subjects looking for help to reassure regulators they are on the straight and narrow now, it’s inevitable that the auditors would look at the banks and see dollar signs from future work rather than scofflaws who need to be scrutinized.

Was it only Deloitte? Nope.

Back on June 4, The Financial Times’ Stephen Foley in New York and Nick Fildes in Sydney reported that KPMG’s International firm had been asked more than once by the KPMG Australia whistleblower to investigate and intervene and had refused to do so.

As part of its oversight role, KPMG International runs an internal whistleblower hotline for staff who believe “personnel of one of the member firms of the KPMG network, or reports issued by them, do not comply with professional, regulatory or legal obligations”.

The whistleblower alerted Bill Thomas, KPMG International’s chair, and Anne Collins, its Sydney-based global general counsel, to the allegations in May 2025, according to the people familiar with the matter, about a year after first raising them with KPMG Australia.

Thomas was previously accused by staff in KPMG’s United Arab Emirates business of ignoring complaints about the boss of its business in the region. KPMG International said at the time that it took all reports to its hotline seriously, taking appropriate action. After initially deciding not to investigate the allegations about its Australia business last year, KPMG International engaged lawyers at Freshfields to review its interactions with the whistleblower.

The “magic circle” law firm endorsed the global headquarters’ position that it could not launch a probe because of a lack of information from the whistleblower. Freshfields also said in correspondence in September that responsibility for any disciplinary action sat with KPMG Australia and that KPMG International’s role was one of oversight, not control, according to people familiar with the exchanges.

My comments on Stephen Foley’s LinkedIn post of the article haver now gathered >45,000 page views! Someone is interested in the issue. What did I say?

Want to catch up on what happened not that long ago at PwC Australia?

And now today, June 8, AFR (Gift link) more or less asks the question I asked on June 7: Why have a hotline in firms if there are no protections except the firm’s word?

The role of KPMG International

KPMG International, which sets rules and has oversight of member firms, repeatedly refused to provide legal protections to the whistleblower, said he had not provided enough information, and insisted that it only had the power to make “recommendations” to a member firm.

In correspondence disclosed to The Australian Financial Review, the whistleblower raised concerns with international leaders, including outgoing KPMG International chairman Bill Thomas.

The refusal to intervene continued even after the whistleblower outlined 17 separate allegations in an August 2025 email. This led KPMG International to ask law firm Freshfields to review its interactions. Freshfields found no wrongdoing and that the international body could only make recommendations to its member firms.

The law firm told the whistleblower in a September 2025 email that KPMG International “does not have the legal ability” to force member firms to take action and that it was the responsibility of an individual firm to fix any problems, “including taking any appropriate disciplinary action”.

Freshfields also described KPMG International’s role as “one of oversight, not control”.

A spokesman for KPMG International said the body could not comment on specific allegations.

“All KPMG firms have agreed to comply with standards and policies established by KPMG International, and KPMG International works with the firms to ensure compliance with them,” the spokesman said.

“KPMG International will continue to support the Australian firm as it rebuilds trust with its people and among its clients and communities ... we encourage all colleagues to speak up if they see or hear anything they consider to be inappropriate.”

The claim that KPMG International does not have the power to intervene contrasts with events in 2018, when it parachuted in executives and cut hundreds of local jobs to rescue its South African business, following a client exodus over scandals.

The whistleblower went to KPMG International, the firm’s independent directors, professional body Chartered Accountants ANZ and corporate regulator the Australian Securities and Investments Commission before contacting Labor senator Deborah O’Neill, who made the allegations public in March.

In late May, KPMG Australia apologised to the whistleblower and admitted its three investigations were inadequate. The firm announced a new fourth inquiry. This will be conducted by Allens, the law firm that produced an earlier report dismissing most of the allegations.

The KPMG International firm is finally taking action, but it’s to block partners who want to leave the firm, who would like to protect their reputations and assets. AFR (Gift link).

KPMG’s global bosses are blocking further partner exits from its Australian firm to prevent a widening whistleblower crisis from disrupting clients ahead of the peak financial year-end audit season.

The intervention by KPMG International comes as internal pressure mounts for the immediate exit of local chairman Martin Sheppard and former chief operating officer Eileen Hoggett, who stepped down from her executive role last week.

The freeze on departures also directly contradicts claims by KPMG International that it lacked the power to intervene earlier in the scandal – a turnaround that risks exposing global partners to questioning by a parliamentary committee.

The whistleblower crisis has already claimed two of KPMG’s most senior executives: chief executive Andrew Yates and head of audit Julian McPherson.

Other local leaders under perceived pressure to depart include deputy chair Carmel Mortell, general counsel Louise Capon and head of human resources Dorothy Hisgrove. All were involved in aspects of the inadequate early investigations into the allegations.

If you thought the straw that broke another Big 4 camel’s back would be allowing three banks KPMG audits to fail on its watch in the space of a month you would be wrong.

© Francine McKenna, The Digging Company LLC, 2026

This is a continuation of our discussion from May 27 of the SpaceX public prospectus compared to the earlier “confidential” drafts. In Part 1 we focused on the changes made by SpaceX along the way based on the SEC’s review — and perhaps the company’s own decision to preempt issues with the SEC — and whether there are insights to be had into the SEC’s disclosure priorities while we wait for the actual comment letters to be posted.

In this edition we want to focus more on the process. There was a lot of discussion, driven by non-stop media coverage, about the SpaceX potential IPO before any documents were filed with the SEC, after the draft registration was filed on a supposed “confidential” basis, and since the public version has been posted. That’s not about to stop but is it good for investors and markets?

The SpaceX prospectus, or S-1, became publicly available on May 20, 2026, but much of what was inside had already been publicized, and discussed incessantly, by media.

SpaceX, like almost every other recent potential IPO, takes advantage of the opportunity to file its draft registration statements (DRS) and potential prospectus confidentially with the SEC and to discuss changes or corrections with the regulator privately, out of the market’s glare. So, how is it possible that so much detailed information was available before the public registration statement was posted by the SEC on May 20?

Since April 2012, when Congress passed the Jumpstart Our Business Startups Act (“JOBS Act”), Section 6(e) of the law has provided for “emerging growth companies” to confidentially submit a draft registration statement to the SEC for a confidential, non-public review by staff prior to a public filing. Before the JOBS Act, companies seeking to go public were generally forced to file registration statements publicly at the start of their SEC review process. However, there has always been an opportunity under Rule 83 to request that information filed with the SEC be withheld when requested under the Freedom of Information Act. In addition:

Securities Act Rule 406[1] and Exchange Act Rule 24b-2[2] provide the exclusive means for companies to object to the public release of confidential information that is otherwise required to be filed. While the rules refer to “documents” that contain confidential information, generally, applications for confidential treatment pursuant to these rules relate to material contracts required to be filed as exhibits to filings.[3] Prior to March 2019, confidential treatment applications under these rules used to be the primary method for companies to protect confidential commercial or financial information filed in material contracts.

The JOBS Act introduced confidential submission procedures for a new category of companies called “emerging growth companies” (EGCs). Emerging growth companies are companies that, at that time, had annual revenue of less than $1 billion. Companies can enjoy the benefits of being an EGC for five years after an IPO, unless their total gross revenue exceed slightly more than $1 billion. The gross revenue threshold is adjusted for inflation every five years and is now $1.235 billion. According to law firm WilmerHale’s 2025 IPO Report, nearly 90% of IPO issuers have qualified as EGCs since the enactment of the JOBS Act.

Section 106 of the JOBS Act permitted eligible issuers to submit draft registration statements to the SEC for nonpublic review, provided the initial public filing occurred at least 21 days before the start of the roadshow. In 2015, the FAST Act shortened the public-filing window even more, from 21 days to 15 days before the roadshow. The last reform was intended to reduce proprietary disclosure costs, encourage even more companies to access public markets, and allow issuers to explore IPOs with lower reputational risk if offerings were delayed or withdrawn.

Critics had argued before the JOBS Act that the system imposed significant proprietary and reputational costs, particularly for smaller and research-intensive companies, because it forced companies to expose sensitive financial and operational information well before an offering was certain to proceed. In 2011, the SEC IPO Task Force explicitly noted that revealing sensitive competitive information long before the IPO date puts US companies at disadvantage:

The SEC Staff’s current practice permits nonreporting foreign private issuers to submit initial registration statements confidentially to the Staff, which “often reviews and screens draft submissions of foreign registrants on a non-public basis.”(3) In contrast, U.S. issuers currently must file their initial registration statements publicly. Confidential submissions offer foreign private issuers a significant advantage by facilitating resolution of the often complex issues encountered during an initial SEC review.

Permitting the confidential review of U.S. issuers’ initial registration statements would remove for U.S. issuers a significant impediment to the IPO process. Doing so would allow U.S. issuers to initiate a potential IPO process, even during turbulent and uncertain market conditions, without immediately disclosing competitively sensitive or otherwise confidential information. Investors would be protected by ensuring that any prospectus with pricing information be made publicly available to investors prior to the SEC declaring the registration statement effective.

It is important to keep in mind that not all companies filing for an IPO ultimately reach the public markets. Some studies find that about 25% of the registration statements are withdrawn before a public listing and IPOs are canceled or postponed (Reiff and Tykvova, 2021, The Journal of Corporate Finance). Companies may withdraw registration statements because of adverse market conditions, weak investor demand, valuation concerns, regulatory issues, or company-specific developments that arise during the SEC review and the company’s marketing process. Academic research suggests that withdrawn issuers often faced lasting reputational and valuation consequences in subsequent IPO attempts (Dunbar and Foerster, 2008, Journal of Financial Economics).

Under the pre-JOBS Act regime, withdrawn issuers were viewed as particularly vulnerable to the perceived “reputational and valuation consequences” because they not only lost or delayed access to public capital markets but had also publicly disclosed sensitive operational and commercial information during the registration process. Academic and policy literature emphasized that even when an offering was ultimately abandoned, IPO disclosures could expose competitively valuable information to rivals and other market participants.

In June 2017, the JOBS Act confidential filing accommodation was expanded beyond EGCs. The SEC’s Division of Corporation Finance announced it would accept voluntary nonpublic draft registration statements from all issuers for IPOs and certain follow-on offerings, not just EGCs. The SEC again expanded the process in 2025 to additional Securities Act and Exchange Act registrations, including de-SPAC transactions and follow-on offerings filed within one year of becoming public.

Confidential draft registration submission was intended to address a real issuer-side problem: the public IPO process could force a company to reveal commercially sensitive information before they knew whether an offering would succeed. Dambra, Field, and Gustafson (2015, Journal of Financial Economics) found that the JOBS Act increased IPO activity, especially among firms with high proprietary disclosure costs. Later evidence is consistent with a capital-formation rationale. Cheng (2023, Journal of Accounting and Public Policy) finds that the JOBS Act confidential filings, testing-the-waters, and reduced disclosure provisions each contributed to increased IPO issuance likelihood during the public-filing stage.

The big tradeoff to confidential draft registration by the SEC is that confidential and private pre-IPO communications between potential issuers and the SEC can increase information asymmetry. Access to information is shifted toward selected market participants, insiders and some institutional investors, before broader public disclosure. For instance, pre-IPO firms can meet privately with institutional investors in “testing-the-waters” meetings. Alhusaini et al. (2024, Review of Accounting Studies) note that these meetings may undermine investor-protection and market-efficiency goals by giving some institutional investors, but not retail investors, private access to management, further increasing the already existing information asymmetry.

One very important thing did not change, however, with the JOBS Act: companies pursuing IPOs continue to be subject to legal restrictions on pre-IPO publicity and media communications.

U.S. securities laws have long attempted to prevent issuers from “conditioning the market” before all investors can receive the offering prospectus. Section 5 of the Securities Act and the SEC’s “gun-jumping” rules historically limited executive interviews, promotional statements, and other public communications by corporate officials during the IPO process. Those restrictions reflect concerns that selective publicity or media hype could influence investor demand before complete registration materials and SEC comments become publicly available to everyone. Although the JOBS Act expanded confidential submissions and permitted certain “testing-the-waters” discussions with institutional investors, it did not eliminate the broader regulatory concern that pre-IPO communications — particularly through the media — may contribute to information asymmetry between sophisticated investors and the broader market.

In practice, however, confidential IPOs often become “open secrets” long before registration statements are available publicly. SpaceX is the most recent example, but it is not the first or the only one. Although SpaceX confidentially submitted its IPO registration statement on March 30, 2026, and did not publicly release its S-1 until May 20, media reports discussed the IPO offering incessantly for weeks prior.

Those “leaks” of information to media included the company’s projected valuation, offering size, governance structure, financial metrics, AI strategy, and investor demand. For example, Reuters reported on April 1, 2026 — just two days after the confidential DRS filing was filed on EDGAR — that SpaceX had confidentially filed for an IPO at a valuation exceeding $1.75 trillion, while Barron’s later described the transaction as an “open secret” before the S-1 became public.

To the best of our knowledge, the academic literature does not explicitly study “leaks” of confidential IPO registration statements to the media before public filing. However, broader literature on IPO publicity, analyst coverage, and investor attention suggests that intensive media coverage around IPOs can contribute to hype and attention-driven trading behavior. For example, Bushee et al. (2020, Journal of Accounting and Economics) find that heightened media coverage during the IPO quiet period is associated with attention-driven retail trading and inferior outcomes for retail investors, while Jia et al. (2026) explicitly frame IPO publicity as a tension between “information production” and “hype.” Thus, it is reasonable to assume that intensive media attention during offering periods can shape investor demand and market narratives before most investors have access to complete registration disclosures and SEC review materials.

For Space X, the potential for information asymmetry between institutional and retail investors is, in our view, especially troubling because Space X specifically targets retail investors in its IPO. From S-1 filed on May 20, 2026:

In addition to allocations made to retail investors by the underwriters, we currently anticipate that certain of the shares of Class A common stock offered hereby will, at our request, be offered to retail investors through Charles Schwab & Co., Inc., Fidelity Brokerage Services LLC and Fidelity Capital Markets, a division of National Financial Services LLC, Robinhood Financial, LLC, and SoFi Securities LLC, as selling group members, via their respective online brokerage platforms. We also anticipate that certain of the shares of Class A common stock will be offered to retail investors through E*TRADE by Morgan Stanley, an affiliate of Morgan Stanley & Co. LLC, one of the underwriters of this offering.

Moreover, retail investors will likely gain exposure to SpaceX even if they never purchase a single share directly. Given the company’s anticipated size, “Fast Entry” to major indexes and index-tracking ETFs appears likely following the offering, with analysts already discussing potential inclusion in benchmarks such as the Nasdaq-100, CRSP Total Market Index, Russell indexes, and eventually the S&P 500 on an expedited basis. As a result, millions of retail investors holding broad-market index funds could become indirect SpaceX investors through passive investment vehicles, whether they like it or not.

We strongly believe investors should not be learning key details of an IPO through selective media reports before registration materials become publicly available to everyone. Confidential submissions were intended to reduce proprietary disclosure costs and facilitate capital formation — not to create an extended period during which information about a pending offering circulates through unofficial channels while the underlying registration statement remains hidden from the broader market. The prolonged gap between an initial confidential draft registration statement (“DRS”) submission and the first public S-1 filing can create opportunities for selective disclosures, media “leaks,” and narrative shaping that may condition investor expectations before all investors have access to the same information.

The concern is not merely that information reaches investors before the prospectus becomes public, but that investors have little ability to assess the accuracy, completeness, or source of that information. In many cases, it is impossible to know who provided the information to the media, whether the source had a conflict of interest because of an economic interest in the success of the offering and is “talking their book”, and whether the reported information reflects a balanced view of the business.

This is not entirely criticism of journalists, whose reporting role is fundamentally different from that of the authors of a prospectus. Media reports about SpaceX before the public S-1 understandably focused on topics likely to attract investor interest, including the company’s expected valuation, AI ambitions, rapid data-center deployment, orbital computing initiatives, and growth prospects. Not all reports were positive: some focused on governance issues, such as Musk’s ability to control the company.

The public S-1, however, also contained extensive discussion of technological, regulatory, supplier, litigation, and additional governance risks, as well as limitations associated with certain operating metrics and strategic initiatives. The result is that investors following pre-filing coverage may have been exposed primarily to selected aspects of the story before having access to the fuller picture ultimately presented in the registration statement and may, therefore, lose their appetite for digging into the details later.

Notably, SEC Chair Paul Atkins, making his pitch for a recent SEC proposal to make quarterly filings optional, told CNBC’s Andrew Ross Sorkin back on September 19, 2025, that both retail and professional investors increasingly obtain information through earnings calls, financial media, and other intermediaries rather than directly from SEC filings (emphasis added):

2:29 Andrew Ross Sorkin The question becomes whether you think the public, especially the public shareholder, retail shareholder that may not have access to all of the new data streams that professional investors have access to, need that information, need more information? And how do you think about that?

Because it is clear that the professional class of investor today can get satellite data. They can get credit card information. There’s lots of inputs that they can be collecting throughout the year that have value that that the retail investor may not have the same access to.

3:03 Atkins That’s true. So but people watch your show and others to get information. And so the dissemination of information is much more broad, widespread than, say, back when I was a kid and I watched my father go through annual reports and proxy statements and back when you actually could do that.

But if you look at the way people, even professionals get their information, they don’t necessarily get it from the 10-Qs. They look for the earnings calls that the CEOs and CFOs of public companies do. And that’s those tend to be things that people concentrate on.

Ironically, SEC Chair Atkins observation highlights the concern raised by confidential IPO submissions: if investors increasingly rely on secondary sources to process information, then the accuracy, completeness, and timing of information provided by media that reaches potential investors becomes even more important.

That raises the question: What happens when information provided by the media before a public filing is inaccurate, selective, misleading, or differs materially from the disclosures ultimately contained in the prospectus? Should the SEC require companies to address those discrepancies, or should investors be expected to identify and reconcile them on their own?

Historically, the SEC has typically not viewed such discrepancies as something the investors must accept or try to discern. In several well-known “gun-jumping” matters, including the IPOs of Google Inc. and Groupon, Inc., the SEC required issuers to address publicity and media statements made outside the prospectus, either by reconciling the statements with the registration materials, incorporating them into the prospectus, or adding specific risk-factor disclosure cautioning investors not to rely on information appearing outside the registration statement.

There is an important distinction between media reports on financial results and valuation of companies that may pursue IPOs in the future and publicity surrounding companies that have already filed confidential registration statements with the SEC. For instance, reports that OpenAI could pursue an IPO as soon as end of May are generally permissible because, as far as we know, no active registered offering yet exists under Section 5 of the Securities Act. Even when such reporting is legally permissible, however, concerns remain regarding the accuracy and sourcing of the information, placing greater responsibility on journalists and media outlets to carefully verify unofficial disclosures and distinguish speculation from facts that can be verified.

However, once a company has confidentially submitted an IPO registration statement — as in the case of SpaceX — selective media disclosures about valuation, financial metrics, governance, or SEC review status can raise “gun-jumping” concerns because they may condition the market outside the statutory prospectus process. Media leaks and other unauthorized public communications during the IPO process can create significant concerns under Section 5 of the Securities Act and may result in SEC scrutiny, offering delays, expanded disclosure obligations, or potential liability.

University of Colorado law professor Ann Lipton discussed the potential legal violations on her podcast with Mike Levin, Shareholder Primacy, on April 29, while the SpaceX registration statement/prospectus was still in the confidential review process with the SEC:

Ann Lipton: Well, I mean, honestly, again, I, you know, we’ve seen leaks about some of the substance and I’m reserving real commentary on that until we actually see the full document. But what we can tell is that tentatively, one might reasonably conclude that SpaceX is ahead of the curve in violating the securities laws.

We’re already, we are already violating the securities laws right out of the get go. Very possibly. I can’t prove it, but I strongly suspect.

Mike Levin: So these would be violating the SEC rules in the Securities Act of 1933. So what’s, what’s, what are those requirements?

Ann Lipton: The Securities Act of 1933, obviously passed in the wake of the 1929 market crash, is focused on forcing companies to disclose information when they sell securities to the public. If you’re selling to the public as opposed to a private sale, there are a lot of disclosure requirements. And the key provision is Section 5. That provision says you can’t offer securities for sale to the public, you can’t even offer, unless there’s a registration statement that is publicly on file with the SEC. Publicly filed.

So, you can’t even offer for sale until it’s publicly filed. And then you can’t actually sell. You can’t close the deal. You can’t actually transact until the registration statement becomes effective, which happens sometime after it’s been filed. So, if files — usually the SEC has comments —they make amendments, it becomes effective and then they can sell.

Eventually, the registration statement becomes public. What do investors miss if they don’t read it in full? They can potentially overlook a lot of required information about the company and about the nature of the securities being sold. The prospectus and subsequent 10-Qs and 10-Ks have more than just all the good sales hype, “Yay, my company is so great”. The final prospectus and subsequent financial filings have all the risks, audited financial statements and reflect the, hopefully, careful review by the SEC to make the disclosure as complete and compliant as possible.

All of this is so that all investors have a complete picture of the company. The concern is that if a company can make offers to sell securities via all of the hype before the registration statement is available, they’ll only talk about the good stuff and leave out all the bad stuff. By the time the full registration statement and prospectus comes, after all of the SEC’s back and forth to get it right, it’s too late. Investors will have “anchored” their views around the hype and selective disclosures.

In our previous post, we’ve briefly discussed a well-known example of this kind of “gun-jumping” from the past and mentioned Skadden memorandum that cited Groupon as a notable example of gun-jumping risk raised by the SEC during the IPO process.

Let’s look at a few examples in more detail.

During Groupon’s 2011 IPO process, the SEC questioned statements made to Bloomberg by co-founder and Executive Chairman Eric Lefkofsky. Lefkofsky boasted to Bloomberg that Groupon was “going to be wildly profitable.” The SEC asked Groupon to explain how this statement was consistent with Groupon’s actual financial condition and prospects:

We note that Mr. Eric Lefkofsky, your co-founder and Executive Chairman, has been reported to have stated in an interview on June 3, 2011 that your company is going to be wildly profitable. See http://www.bloomberg.com/news/2011-06-05/groupon-chairman-lefkofsky-says-coupon-company-will-be-wildly-profitable-.html. Please provide your analysis of how this statement is consistent with the disclosure in your prospectus about the company’s financial condition and prospects.

Groupon responded that the published statement did not “accurately or completely reflect” Lefkofsky’s views, asserted that he did not realize the conversation was on the record, and stated that the company had unsuccessfully requested that Bloomberg not publish the remarks. Groupon ultimately added a risk factor cautioning investors not to rely on statements outside the prospectus and acknowledged its obligation to “diligently monitor and, as appropriate, restrict” communications during the registration process.

The SEC’s review of Sweetgreen’s IPO filings provides another example of the agency’s scrutiny of IPO-related information appearing in the media. On November 16, 2021, the SEC issued verbal comments to Sweetgreen, seeking clarity on the discrepancy between the profitability information provided by Sweetgreen to reporters and the actual profitability numbers reported in the IPO materials:

Verbal comment relating to certain media reports referencing the Company’s profitability and revenues

The Staff has inquired about an article published by [***] on [***], 2021 titled “[***]” (the “Article”). The Company respectfully advises the Staff that, as disclosed in the Amended Registration Statement, the Company has incurred significant losses since inception, including in each of the periods presented in the Amended Registration Statement. The Article suggests that the Company lied by “repeatedly” telling reporters it was profitable based on a statement made in 2018.

While the details of the article were redacted pursuant to Rule 83 confidentiality request, the language of the comment, including the allegations of repeated lies to reporters, are consistent with the allegations brought by an October 28, 2021, Axios article. In its response, Sweetgreen clarified that the non-GAAP profitability numbers shared with reporters, while not precise, were intended to be an estimate pending the final review.

The Company supplementally advises the Staff that the Company, in the quoted statement, and the references to profitability in the other publications cited by the Article, was meant to refer to certain non-GAAP financial metrics commonly used in the industry and used by management in evaluating its performance at the time, in particular non-GAAP operating profit for the third quarter of fiscal 2018, a period for which results are not included in the Amended Registration Statement. The purpose of this statement was to respond to a question that the Company believed was focused on operating profitability and not GAAP net income. Similarly, the Article noted that, in January of 2020, the Company was quoted in an article by the New York Times that revenue for fiscal year 2019 “topped $300 million.” As disclosed in the Amended Registration Statement, for the fiscal year ended December 29, 2019, the Company had revenue of $274.2 million. Accordingly, this statement did not precisely reflect the Company’s revenues for fiscal year 2019, but was meant to be a rough estimation prior to the completion of the review of fiscal 2019 financial statements…Nevertheless, in light of the Staff’s comment and to avoid any potential confusion with respect to these statements, the Company has revised the disclosure on page 33 of Amendment No. 2 to include risk factor disclosure related to the statements.

Similar to Groupon, Sweetgreen agreed to add a risk factor related to the statements provided to the media. Here is another similarity with Groupon: in both cases, the SEC questioned not the fact of the interview with the media, but the accuracy of the claims related to alleged overstatement of profitability.

SpaceX might be another example where management’s public statements and S-1 filings disagree. According to CNBC, the company’s description of a major AI infrastructure agreement with Anthropic in S-1 filing is inconsistent with the subsequent comments by Elon Musk on X. Based on CNBC reporting, the prospectus notes that Anthropic agreed to lease computing capacity from SpaceX through May 2029 and was expected to make payments totaling approximately $1.25 billion per month. However, Musk later stated on X that the arrangement was a 180-day lease with a 90-day mutual termination provision:

In his X post Wednesday night, Musk wrote, “SpaceX has not committed to leasing Colossus for years,” and called the pact a “180 day lease with 90 day notice mutual cancellation thereafter.” The prospectus, however, said nothing about the deal potentially ending in a matter of months.

Whether Anthropic is slated to pay SpaceX $15 billion a year for the next three years or will be spending substantially less over a much shorter period represents a major consideration for prospective investors. SpaceX’s total revenue in 2025 was just $18.7 billion, and selling compute capacity out of its data center adds an entirely new revenue stream, while putting SpaceX in competition with so-called neocloud providers such as Nebius and CoreWeave.

The landscape of the SEC regulation is changing fast, and could, potentially, involve changes to gun-jumping rules. On May 26, 2026, SEC Chairman Atkins, in a speech at the Stanford Rock Center for Corporate Governance, noted that gun-jumping rules need to be updated because they are complex and difficult to navigate:

I routinely hear from companies and their advisors that one of the challenges of the IPO process is navigating the communication—or gun-jumping—rules under the Securities Act of 1933. In light of this, I would like to see any rulemaking in this area include considerable reforms to these rules…

…However, the Commission’s spider web of gun-jumping prohibitions and exceptions remains difficult to maneuver.

At this stage, it is not yet clear what any future reforms would entail or how far the SEC may ultimately go in relaxing the current framework. In our view, however, regardless of the complexity of the rules, a basic principle should remain unchanged: information disseminated through the media during an offering process should at least be consistent with the information contained in the draft and final registration statements.

SpaceX targets June 12, 2026, as the IPO date, according to media reporting. Thus, all else equal, it looks unlikely that SEC review will derail or delay the IPO. But the CNBC episode raises a broader question. In that case, reporters were able to compare Elon Musk’s public statements against a publicly available S-1 filing and identify potential inconsistencies.

Let’s go back to our original question: What happens when information circulates through the media while the registration statement remains confidential and could change? Investors and other market participants have no official SEC filing against which to evaluate the accuracy, completeness, or context of the information being reported.

One reason why, beyond the legal violations, the SEC doesn’t typically like these kinds of leaks is that they put pressure on the SEC to meet the leaked deadlines and for the SEC to allow the final prospectus, regardless of SEC concerns, to live up to the company’s hype. So, who was doing all the leaking to the press about SpaceX while the prospectus was still confidential and why? Ann Lipton and Mike Levin continued their discussion on April 29:

Mike Levin: So, everything, at least that you and I know about this, came out of the media. I think there was an article in Reuters. So obviously these reporters have just been basically doing a good job. I mean, they’re not like complicit in this...

Ann Lipton: No, no. I’ve got to be clear. Somebody’s leaking. The reporting is that they’ve actually seen pieces of the registration statement. So, someone’s giving that to them. Now, let’s be very clear. I am in no way blaming the reporters.

Journalists are not subject to Section 5. They are not subject to the securities laws because that would be a First Amendment problem. They can print what they want. And, of course, if they get this information, they’re going to disclose it. They haven’t done anything wrong. I need to be very clear. The issue is not the reporters. The issue is where the leaks are coming from. And specifically, if it’s coming from SpaceX, either directly handing them sections of the registration statement or authorizing someone to...

And that brings me to my big caveat here because I don’t want to get sued. I don’t know for sure where these leaks are coming from. As I said, SpaceX is allowed to share this information with large institutional investors. So, it’s possible that those investors are the ones who are leaking.

Mike Levin: Yeah, they would have it. There’s no motivation for them to do that.

Ann Lipton: I just want to say, it’s possible the investors are leaking. And in the past, the SEC’s position has been that if communications are distributed legally by the company and then someone else decides to just go off on their own and distribute them elsewhere, that’s not the company’s problem. As you say, I am skeptical. I mean, I have no inside information. I’m reading the same public documents as everyone else, which I am saying for legal reasons to disclaim any accusations. But I really doubt that this is coming from rogue investors handing this information over to reporters because if they were, you’d think the company would be taking action to stop it.

But there’s no hint that SpaceX is trying to...And it’s not like one document dump. This is every day. It’s like, oh, we saw a new piece of information. It’s an article. Yeah, so I suspect that either SpaceX is leaking or it’s kind of wink, wink, nudge, nudge, encouraging and...

Mike Levin: Or it’s bankers or it’s lawyers.

Ann Lipton: But in some way with SpaceX tacitly blessing it, yes. Yeah, and that is what Section 5 prohibits. So in fact, the fact that we’re getting select portions over time almost suggests to me that after they kind of make everything...

Mike Levin: Well, this is orchestrated.

Ann Lipton: Yeah, orchestrated or more like the point of a confidential filing is so that they can have some discussions with the SEC. And it might be that once they get a kind of okay from the SEC, that’s when another piece is leaked or something like that. I don’t know.

Mike Lipton: Oh, so as their discussion...It seems to you there’s a potential explanation for this fact pattern that is every time something leaks, it’s possible that SpaceX and its advisors have already discussed that. The substance of that section with the SEC last week, I’ll say three days later, okay, we’re going to send these 10 pages out just in front of reporters.

Ann Lipton: That would be my best guess, but obviously I don’t know. But the problem is that if this is either explicitly or implicitly being done with SpaceX approval, this is what Section 5 exists to prohibit.

While we agree with Prof. Lipton that journalists are generally not subject to Section 5 restrictions, they are potentially bound by their employers’ policies and procedures for verifying information and anonymous sourcing and also their profession’s Code of Ethics.

What are the responsibilities and obligations of journalists reporting on pre-IPO and other hot companies? Francine is a journalist with decades of experience writing about accounting and regulatory matters. She directs our readers to the profession’s own Code of Ethics from The Society of Professional Journalists. This professional association encourages its members to maintain high ethical standards “particularly in a climate of eroding public trust in the American press and the pervasive spread of misinformation.”

The Code also says to provide context and to take special care not to:

…misrepresent or oversimplify in promoting, previewing or summarizing story.

The Code guides journalists to:

Consider sources’ motives before promising anonymity. Reserve anonymity for sources who may face danger, retribution or other harm, and have information that cannot be obtained elsewhere.”

The gist is, according to Francine, don’t let companies “talk their book” and use you as a stenographer.

The first of SPJ’s four ethical principles is “Seek Truth and Report It.” The bullet points under this principle include taking responsibility for the accuracy of your work and verifying information before releasing it. The Code encourages journalists to use original sources whenever possible.

Journalists have significant influence over how the investing public values pre-IPO companies. That’s because reporters who cover them often gain pre-market access to company executives, data, guidance, and “color” on how the company views salient facts. This access converts routine reproduction of numbers, metrics, and company news into actionable and “market conditioning” information. Journalists, especially at the largest outlets like Wall Street Journal, Bloomberg, and Reuters are also competitive.

When they cover private companies and pre-IPO companies, especially behemoth once-in-a-lifetime IPOs like SpaceX, they are often tasked by editors to get “scoops” or exclusives. Unfortunately, information received from private sources could be difficult to validate, and taking a company’s words about profit, loss and other key metrics raises the risk of repeating potentially inaccurate information.

For example, a July 2021, New York Times article about the public offering of media company BuzzFeed, quoted revenue and profitability numbers attributed to anonymous “people familiar with the company”, and not based on audited GAAP financial statements reviewed by the reporter. Slide decks and presentations such as BuzzFeed’s “prospectus” provided only unaudited information — essentially a promo piece. Journalists even referred to access to this information as a “scoop”.

Even though all of the media companies mentioned in the July 2021 New York Times article were imminent go-public transactions that require at least two years of audited financial statements to be provided in the prospectus filed with the SEC, there is no reference to audited numbers in the stories. The reporters apparently did not review them or even bother to ask for them. Journalists reported unverified financial information from private companies like Theranos, which was eventually prosecuted as a fraud, and media company, Ozy Media, where its CEO was arrested for fraud.

In both cases the information reported was simply what the companies told them and neither the reporters, nor investors, seemed to care. Less than two years after its IPO, in a case of “the shoemaker’s children have no shoes”, on April 20, 2023, the CEO of BuzzFeed, Jonah Peretti, announced that he was closing BuzzFeed News.

We do not expect journalists to stop reporting on pre-IPO companies. On the contrary, thoughtful reporting can enrich the information environment and help investors better understand businesses before they enter the public markets. However, as users of financial statements, we sometimes find it difficult when reviewing pre-IPO reporting to tell whether the numbers being discussed are GAAP or non-GAAP, how they were calculated, and whether they came from audited financial statements, management estimates, investor materials, or unnamed sources promoting the stock.

Francine, from the perspective of a journalist, takes a stronger view: when companies are close enough to an IPO to have audited financial statements, reporters should ask for audited GAAP numbers, instead of relying on alternative, custom defined metrics that are not comparable or can arbitrarily change with every reporting period. In her opinion, journalists should also ask which the audit firm is signing the opinions, a required step to go public, because the name of the auditor firm can tell investors a lot about how serious the company is about quality accounting and disclosures and the presence of potential conflicts of interest. The more transparent reporters are about the source and nature of the numbers they report, the less readers have to rely solely on the journalist’s access, judgment, or interpretation.

© Francine McKenna, The Digging Company LLC, 2026

This is Part 2 of my update on the latest push by the deregulators to reduce the constraints on auditors, and their clients, regarding auditor independence. It is intended to provide some history and context and, then, tell you what’s really behind the push this time, supported by data. Part 2 is behind the paywall, so please consider becoming a paid subscriber to The Dig.

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Part 1 was intended to bring everyone up to date on the issues. It was free for all.

Before I get into the auditor independence data, I want to comment on a story that is all over the place in Australia, on LinkedIn, and made it to the Financial Times, albeit bylined by its Sydney reporter.

The chief executive and the audit leader of KPMG’s Australian arm have resigned after the Big Four firm admitted a probe into whistleblowing allegations had fallen short of its standards. KPMG’s audit work in Australia has been under scrutiny since March, when a senator used parliamentary privilege to air allegations made by a whistleblower that the firm had accessed and shared confidential audit information to win contracts when bidding for work.

It is the second major scandal at a Big Four consultancy in Australia in recent years after PwC’s global arm took control of its local operation in 2023. That was the result of one of its partners using confidential information gleaned from advisory work with the government to feed back into the firm, which used it to tailor tax avoidance advice for global clients.

KPMG has previously argued the whistleblower accusations were “unsubstantiated”, but it had imposed sanctions on some of its staff in April. However on Friday, Andrew Yates, chief executive of KPMG Australia, resigned with immediate effect after the firm said investigations into the whistleblower’s claims had fallen short. Julian McPherson, national managing partner for audit and assurance, also resigned.

Here’s a gift link to Edmund Tadros’ piece at the Australian Financial Review (I subscribe!):

A sprawling KPMG Australia leaks scandal has forced the resignation of its chief executive, as Telstra and Optus were added to the list of major Australian companies whose confidential data was allegedly misused by the firm.

The accounting giant’s Andrew Yates had spent weeks downplaying whistleblower claims that personnel misused confidential client data to win work, but in a dramatic escalation on Friday he and audit head Julian McPherson resigned.

Yates said: “I have been committed to a speak-up culture in our firm, it is clear that in this case we have let ourselves down and I take accountability.”

The shock exits follow the discovery of a third major confidentiality breach, where highly sensitive Optus audit information was leaked to a KPMG team bidding for rival Telstra’s account. This revelation forced the firm to scrap its initial findings dismissing the whistleblower allegations, triggering a fourth internal investigation.

The widening fallout drags in the highly sensitive commercial data of corporate heavyweights Lendlease, Telstra, Optus, Dexus, Macquarie Group and Westpac. Lendlease chief executive Tony Lombardo has previously described KPMG’s actions as “not acceptable”, while the Department of Finance has threatened to ban the firm from winning further government work.

Well, this is quite a dog’s breakfast, a shambles, with more than one “investigation” that’s gone totally pear-shaped!

First, this is not the first time KPMG has done such a thing. When it happened the last time people were criminally prosecuted. The head of KPMG U.S. audit left the firm and was eventually sanctioned by the PCAOB. The U.S. leader of the firm at the time escaped relatively unscathed, however, and is now on several boards that have needed significant accounting guidance over the years.

Second, whistleblowers from inside the Big 4 are critically important to keeping the firms honest but they are few. Why? They get treated like crap!

Third, there are accounting and audit academics who have commented to me directly and indirectly that this kind of thing is no big deal. As I told EY senior partner whistleblower Joe Howie:

So, what happened back in 2016, when KPMG wanted to win a new audit engagement in Spain?

While I was reporting on the KPMG PCAOB data theft scandal at MarketWatch between 2017 and 2019, two attorneys unexpectedly, and undoubtedly mistakenly, filed two un-redacted documents in the criminal case in the Southern District of New York against the KPMG partners and the PCAOB executive.

These documents — Exhibit N and Exhibit O — provided significant details about KPMG clients affected by the scandal, the un-indicted partners and KPMG officials who had been involved in these engagements and in KPMG’s National Office activities, and about related entities such as Palantir, which was hired to develop a model using the stolen regulatory data that could predict the PCAOB’s inspection selections.

All of the remaining Big 4 — EY, PwC, and KPMG — were in the running to replace Deloitte at BBVA. But one of them had an edge.

KPMG won BBVA audit with stolen data about rival’s inspections

Francine Mckenna, MarketWatch, June 21, 2018 at 3:40 p.m. ET

Former regulatory executive used access to Deloitte inspection information to successfully pitch BBVA

An auditor was able to use access to confidential regulatory inspection data to get advance knowledge of its own inspections and also poach a client.

The revelation, coming in court documents supporting the government’s case against former KPMG partners, shows the confidential information was also used against the auditor’s rivals.

The story dates back to 2016, when a Spanish bank, BBVA, was forced to solicit bids from other audit firms and switch from an audit relationship with Deloitte’s Spanish firm due to European Union’s mandatory audit rotation rules. Confidential information around those bids gave KPMG a secret advantage over rivals PwC and Ernst & Young, who were also eligible to bid on the BBVA audit.

The episode was described in the Securities and Exchange Commission’s complaints against four former KPMG partners, a KPMG employee and a former Public Accounting Oversight Board employee. The KPMG Spain partner involved was not named and the Spanish banks were not named. Use of another audit firm’s confidential inspection data to pursue the BBVA audit was not outlined in the original criminal indictment.

Brian Sweet, a former partner at KPMG, used his contacts at the audit regulator PCAOB, which was his former employer, to obtain highly confidential data about the audits of BBVA and Banco Santander, according to a new document filed in the case.

Sweet and his PCAOB contacts had access to information about all the largest audit firms, not just KPMG. Sweet pleaded guilty on January 5 to conspiracy and wire fraud and is cooperating with the authorities.

Emails obtained during KPMG’s internal investigation of the scandal were turned over to the prosecutors in the case against the former KPMG officials. The correspondence spells out how KPMG gained an advantage over its rivals.

For more on the U.S. KPMG scandal see our research published in British Accounting Review.

Auditor independence, Part 2

Now onto auditor independence, Part 2.

Let’s review some history for context.

The SEC adopted, “Revision of the Commission’s Auditor Independence Requirements,” in November 2000, and then, a short time later, on January 28, 2003, the SEC additional rules required by the passage of the Sarbanes-Oxley Act in July 2002 were adopted, “Strengthening the Commission’s Requirements Regarding Auditor Independence”. The PCAOB was also required to incorporate the 2002 Sarbanes-Oxley law into its rules.

The November 2000 revision incorporated a comprehensive review of non-audit services that auditors had been providing to audit clients. As a result, the auditor independence rules were amended in Regulation S-X. In the final version of Release 33-7919, published in February 2001, the SEC described the amendments as a “modernization” of its existing rules, necessitated primarily by the increasing proportion of revenue that the global audit firms generated from advisory and tax services, and the growing extent to which these services were being provided to audit clients.

Lynn Turner, SEC Chief Accountant from 1998 to 2001, was instrumental in authoring the major auditor independence update in November 2000, before the Enron bankruptcy and Arthur Andersen collapse.

He wrote, 26 years ago, to highlight the rationale for tightening the rules, and the issues are very similar to what we face again, now:

America’s accounting firms have established a proud heritage of excellence through the years, fulfilling a mandate established in 1933 to provide investors with information that is both comprehensive and reliable.

Yet, competitive pressures and an imperfect self-regulatory presence gave rise to a need to address both perceived and actual conflicts of interest. Furthermore, recent events, news stories, and the business desires of public accounting firms to be able to invest in certain companies, have their clients invest in their own public offerings, and practice law, in addition to concerns over the culture and controls within the firms, raise significant public policy issues that require serious consideration. Accordingly, the Commission proposed changes to our auditor independence requirements in response to these developments.

Some things change but the need for investors to raise the alarm to push back on the non-stop pressure to de-regulate stays the same…

The accounting profession has long embraced the need for auditors to not only be in fact, but also to appear to be, independent.

Statement on Auditing Standards No. 1, (Effective Date: For auditors’ reports issued or reissued on or after May 24, 2004 Final Rule: PCAOB Release No. 2003-025(PDF), The following auditing standard has been superseded effective as of December 31, 2016 pursuant to SEC Release No. 34-75935, File No. PCAOB-2015-01 (September 17, 2015). See PCAOB Release No. 2015-002) states:

“Public confidence would be impaired by evidence that independence was actually lacking, and it might also be impaired by the existence of circumstances which reasonable people might believe likely to influence independence... Independent auditors should not only be independent in fact, they should avoid situations that may lead outsiders to doubt their independence.”²

Witnesses at the SEC’s hearings back then on the auditor independence rule strongly endorsed the need for auditors to maintain the appearance of independence from audit clients. Paul Volcker, former Chairman of the Federal Reserve Board, in response to a question about investors’ perceptions of a conflict of interest when auditors provide non-audit services, said:

John Whitehead, former co-chairman of Goldman Sachs and a member of numerous audit committees testified:

“Financial statements are at the very heart of our capital markets. They’re the basis for analyzing investments. Investors have every right to be able to depend absolutely on the integrity of the financial statements that are available to them, and if that integrity in any way falls under suspicion, then the capital markets will surely suffer if investors feel they cannot rely absolutely on the integrity of those financial statements.”

I could go on with quotes from institutional investors such as TIAA CREF and CalPERS, and from many others. The message coming out of those hearings was very clear: the appearance of independence matters a lot, too. It is the oxygen that keeps our profession alive.

The subsequent January 2003 SEC update covered a number of additional areas, clarifying and explaining decisions made in the final Sarbanes-Oxley Act of 2002 regarding auditor independence including the nine non-audit services that the law now prohibited firms from providing to audit clients.

In particular, there was a significant discussion of tax services.

The Commission reiterates its long-standing position that an accounting firm can provide tax services to its audit clients without impairing the firm’s independence. Accordingly, accountants may continue to provide tax services such as tax compliance, tax planning, and tax advice to audit clients, subject to the normal audit committee pre-approval requirements under 2-01(c)(7). Additionally, the rules we are adopting require registrants to disclose the amount of fees paid to the accounting firm for tax services. The rules are consistent with the Act which states that:

A registered public accounting firm may engage in any non-audit service, including tax services , that is not described in any of paragraphs (1) through (9) of subsection (g) for an audit client, only if the activity is approved in advance by the audit committee of the issuer.¹¹⁰ (Emphasis added)

Nonetheless, merely labeling a service as a “tax service” will not necessarily eliminate its potential to impair independence under Rule 2-01(b).¹¹¹ Audit committees and accountants should understand that providing certain tax services to an audit client would, as described below, or could, in certain circumstances, impair the independence of the accountant. Specifically, accountants would impair their independence by representing an audit client before a tax court, district court, or federal court of claims. In addition, audit committees also should scrutinize carefully the retention of an accountant in a transaction initially recommended by the accountant, the sole business purpose of which may be tax avoidance and the tax treatment of which may be not supported in the Internal Revenue Code and related regulations.¹¹²

The PCAOB subsequently adopted additional rules to strengthen and clarify the rules around provision of tax services, including to clear prohibition of tax services priced on a contingent or value-added basis.

I want to highlight the contents of these two footnotes, 111 and 112, from the SEC’s 2003 rules because they are also important to why this SEC, and in particular the new EY regulatory “mafia”, are anxious to close the window on any potential liability from providing prohibited tax services to audit clients.

¹¹¹It would not be appropriate to provide a prohibited service, label it a “tax service,” and argue that it is, therefore, permissible. For example, an accountant seeking to provide a broker-dealer service and arguing that, because there are tax implications of certain brokerage activities, the service is permissible would constitute an attempt to improperly circumvent the list of prohibited services. See, letter of Ernst & Young dated January 6, 2003 (p. 16).

¹¹²The Commission on Public Trust and Private Enterprise recently concluded as a “best practice” that an accounting firm should not be providing “novel and debatable tax strategies and products that involve income tax shelters and extensive off-shore partnerships or affiliates” to audit clients. See The Conference Board Commission on Public Trust and Private Enterprise, Findings and Recommendations , January 9, 2003, p. 37.

Despite these clear rules, and the PCAOB’s tightening of them, there have been numerous instances of a lack of enforcement related to “novel and debatable tax strategies and products that involve income tax shelters and extensive off-shore partnerships or affiliates” and to contingent tax services provided to audit clients.

EY and its professionals have paid fines for quite a few auditor independence enforcement actions since the passage of Sarbanes-Oxley in 2002, in spite of the overall ebb and flow of enforcement about anything related to the auditors and audit firms.

There’s one from December 2021 that specifically involved tax professionals billing on a contingent basis for services to an audit client.

The SEC’s orders find that tax professionals at EY billed public company Cintas Corporation for contingent fees for non-audit tax services for approximately nine years, despite EY also being hired to audit Cintas.

Despite the SEC saying that the result of these violations was that the firm was not independent of is audit client, the SEC did not hold the firm responsible for the actions of the two partners and one manager, two of whom were attorneys. That investigation was led by Washington D.C. -based SEC attorneys.

Contingent billing to audit clients is a really big no-no and, as I mentioned in Part 1, Dave’s Michael’s story said the SEC wants to know more about these situations, if they exist at other firms.

But, after four years, we’ve seen nothing come of it. On the contrary, now that the EY triad is on charge of the main accounting/audit regulators, these are the rules the SEC wants to roll back instead.

Finally, since I write about this issue all the time, it is always easy for me to find examples of what Dave Michaels said the SEC was looking into, “any cases in which audit firms obtained contracts that reimburse them for losses caused by lawsuits over their work, or made fees contingent on a particular result or outcome,” but where there has as yet been no evidence of SEC or PCAOB enforcement action.

Coincidentally, or maybe not given the firms’ market shares and track records, the ones I found back in 2022 were all for EY or PwC.

Both EY and PwC embarrassed themselves with disingenuous responses to Senator Levin’s questions. There are obvious auditor independence conflicts for both firms who continue to serve dual roles as HP’s and Caterpillar’s “independent” audit firms as well as tax avoidance strategy advisors. An auditor is supposed to be independent and objective, but advisory services, and especially lobbying, compromises that independence. This is not new since Enron and the Sarbanes-Oxley law. SEC v. Arthur Young, a decision in 1984, states, “[i]f investors were to view the auditor as an advocate for the corporate client, the value of the audit function itself might well be lost.” The SEC recently sanctioned EY for being a paid lobbyist for two audit clients.

“Tax Avoidance On An Industrial Scale” Says British MP About PwC’s Luxembourg Work For AIG And Others December 10, 2014

It’s important to recall that the overall allegations against PwC are even worse when you consider that more than 100 of the 300+ companies are PwC’s audit clients. I wrote in Medium.com after the ICIJ investigation came out that this systemic violation of auditor independence requirements should be immediately investigated by the SEC and PCAOB. (PwC has been answering a lot of questions about its work lately.

The Wall Street Journal’s Michael Rapoport reported that the PCAOB is now looking into PwC’s tax advice to Caterpillar for auditor independence violations. The schemes were the subject of a hearing held last April by Senator Carl Levin where PwC partners made some embarrassing admissions.)

It’s true that the loophole for auditors and tax advice left in SOx is big enough to drive your entire diverse staff through in a rainbow colored double-decker bus. However, PwC and others crossed the line by designing and mass-market selling speculative, aggressive tax avoidance schemes to audit clients, too. That’s prohibited by SOx and by general auditor independence principles, for sure.

From my column at Medium, “Luxembourg Tax Document Leak Leaves PwC and its Multinational Clients Vulnerable”:

PwC is also asking for big trouble from the SEC and PCAOB in the US by providing “novel and debatable tax strategies and products that involve income tax shelters and extensive off-shore partnerships or affiliates” to its own audit clients.

PwC audit clients make up a very large portion of the 340 Luxembourg tax advice clients on the ICIJ list. PwC must comply with US SEC auditor independence rules under the Sarbanes-Oxley Act of 2002 for US-listed audit clients.

PwC sold, and the audit committees approved, non-audit tax services for “transaction[s] initially recommended by the accountant, the sole business purpose of which may be tax avoidance and the tax treatment of which may be not supported in the Internal Revenue Code and related regulations.”

That’s prohibited by the Sarbanes-Oxley Act of 2002.

It’s no wonder that auditors, even of these large public companies, were confused about independence.

Well, not really.

Tax Pays: HP Pays Auditor Ernst & Young Two Million To Testify February 18, 2013

So it was quite a shock for me to learn that, when the debate landed in the US, HP paid Ernst & Young, probably the preeminent tax advisor of the Big Four accounting firms at least for US multinationals, for testimony before the Senate Subcommittee on Investigations in September.

Maybe it doesn’t seem strange to you to see $2 million in “Other” fees to the auditor show up on the HP proxy. Maybe you weren’t aware Ernst & Young is already being investigated by the SEC for independence violations related to tax lobbying. According to Reuters, Ernst & Young provided tax lobbying services to audit clients.

The last time we had a big Big Four independence rules crackdown, it was 2004. It was Ernst & Young again, sanctioned for its systems integrator relationship with PeopleSoft, an audit client. Ernst & Young was suspended from accepting new public company audit clients for six months.

PwC And Alliance Partners – Staying Close To Home August 1, 2007

Sequoia Capital, which invests in Logical Apps, is an external audit and tax client of PwC. SEC/PCAOB – Isn’t it against the Independence rules for PwC to be making splashy announcements of alliances with companies that are significant investments of their audit clients?

Meet the Auditors – Ernst & Young February 6, 2007

SEC: Ernst & Young Violated Rules
Nov. 15, 2002 (Associated Press)

In its administrative proceeding, the SEC said that Ernst & Young was auditing the books of business software maker PeopleSoft Inc. at the same time it was developing and marketing a software product in tandem with the company. Ernst & Young engaged in the dual activities from 1993 through 2000, according to the SEC.

The SEC said the product, named EY/GEMS, incorporated some components of PeopleSoft’s proprietary source code into software previously developed and marketed by Ernst & Young’s tax department. The SEC alleged that Ernst & Young tried to gain a competitive advantage by putting the source code into its product and agreed to pay PeopleSoft royalties of 15 percent to 30 percent from each sale of the product.

When the case arose in May, there were only three commissioners on the five-member SEC: Chairman Harvey Pitt, Cynthia Glassman and Isaac Hunt. Pitt and Glassman removed themselves from voting on whether to take the action against Ernst & Young because Pitt had represented the firm as a private securities lawyer and Glassman had been an Ernst & Young executive.

That left only Hunt to authorize the SEC attorneys to proceed, prompting the administrative law judge’s dismissal.

A new hearing will be scheduled before a law judge to determine whether any sanctions should be imposed on Ernst & Young, the SEC said.

It was the second time the SEC had brought an auditor independence action against Ernst & Young. The firm settled a 1995 action by agreeing to comply with independence guidelines.

Robert Herdman, who resigned as the SEC’s chief accountant last Friday in the controversy over the selection of former FBI director William Webster to head a special accounting oversight board, also had been an executive of Ernst & Young before coming to the SEC.

In a similar case, the SEC in January censured another Big Five accounting firm, KPMG, for allegedly violating the auditor independence rules. The agency said KPMG invested $25 million in a mutual fund at the same time it was auditing the fund’s books.

KPMG, which was not fined, agreed to the SEC’s censure without admitting or denying the allegations and agreed to take measures to prevent future violations.

The SEC adopted the independence rules in November 2000 after a bitter fight between the accounting industry and Arthur Levitt, then the SEC chairman. He and others worried that accountants in some cases had become too cozy with the companies they audited, threatening the integrity of financial reports and undermining investor confidence.

The final EY PeopleSoft enforcement action is here.

EY’s recent split attempt

More recently EY tried to split the firm again, and spin off advisory and tax. It was the second time in twenty-five years. The first was the sale of its advisory practice to Cap Gemini in March of 2000 that camw with a five-year non-compete on all the the shed services. The enforcement of auditor independence rules was so lackadaisical and uneven that EY was able to regrow its advisory business again, big enough to attract enough attention to consider a spin-off and IPO.

The SEC and PCAOB have never, in my recall, sanctioned an audit firm for independence issues related to the provision of abusive tax avoidance services to audit clients, even the obvious cases that were publicized during Congressional hearings or by major and recent investigative journalism efforts, let alone the non-stop examples I’ve provided to them.

Neither the SEC nor PCAOB consider it their turf to look at how the audit firms conduct standalone consulting engagements, including tax engagements, unless it affects auditor independence at an issuer. That’s why they call it “auditor independence” not “independence and objectivity of audit firms even when they do other services not in connection with an issuer audit that might affect the public perceptions of their overall independence, objectivity and integrity as a watchdog for the capital markets.”

Why are tax services so important to the Big 4 global audit firms?

My answer, and the data to support it, comes after the paywall.

Read more

This is collaborative effort, co-authored with Deep Quarry the newsletter from Olga Usvyatsky. If you value our work, please subscribe!

Since the JOBS Act was passed in 2012, companies pursuing IPOs have been permitted to submit draft registration statements confidentially to the SEC before making them public. The purpose of the reform was to allow companies to explore public offerings and resolve SEC disclosure comments without immediately exposing sensitive business information to competitors or suffering reputational harm if an offering was ultimately delayed or withdrawn.

At the same time, the SEC has historically imposed limitations on companies sharing information outside the prospectus. Section 5 of the Securities Act and the SEC’s “gun-jumping” framework were designed to prevent issuers from conditioning the market through selective publicity before investors have access to the complete registration statement. In well-known cases involving companies such as Google and Groupon, the SEC required issuers to explain or reconcile statements made through the media with the disclosure contained in their registration materials.

Skadden memorandum discussing IPO communications risks noted that Groupon’s IPO had been delayed for months amid SEC scrutiny and adverse market conditions. The SEC had required Groupon to include a leaked internal email from management as an appendix to the prospectus, thereby subjecting the company to prospectus liability for its contents. Skadden cited both the Bloomberg interview and the leaked employee email as examples of how media communications and leaked statements outside the formal registration process can become part of SEC review and create securities-law exposure during an offering.

SpaceX presents a particularly interesting case study because information in the confidential IPO prospectus filed with the SEC was widely discussed by the media prior to its public availability. For example, Reuters reported on April 1, 2026 — just two days after the confidential DRS filing was filed on EDGAR — that SpaceX had confidentially filed for an IPO at a valuation exceeding $1.75 trillion, while Barron’s later described the transaction as an “open secret” before the S-1 became public.

According to media reports, SpaceX is targeting an IPO around June 12, 2026. If those reports prove accurate, the period between the initial draft filing and the IPO would be approximately 75-80 days — fairly close to the 88-day median interval between the first S-1 filing and IPO completion documented by Loughran and McDonald (2013, JFE). That’s a remarkable result for such a huge offering and such a complex company. That would suggest that, despite extensive media discussion of the offering during the confidential review period, the SEC review process remains on the timeline broadly consistent with historical IPOs.

We will talk more about confidential submissions, market conditioning, and SEC Chair Atkins comments suggesting that “gun-jumping” rules are likely to be modified in detail in a separate post (stay tuned).

In this post, we want to explore a different challenge. While the SEC generally reviews all registration statements, SEC comment letters to future issuers are not publicly available until at least 20 business days after the IPO. In practice, given the staffing constraints at the SEC, it often takes much longer than that — in some cases, months — before those letters are publicly available on the SEC’s EDGAR online platform.

At the same time, academic research suggests that the SEC’s review of draft registration statements frequently results in economically meaningful disclosure revisions and sophisticated IPO participants — including underwriters and institutional investors — actively produce and process information during the offering process. Lowry et al., (2020, The Review of Financial Studies) argue that SEC comment letters lead companies to increase disclosure “on precise topics of SEC concern,” and that these regulatory interactions reveal economically meaningful information about firm quality and IPO outcomes. Likewise, Zhu, 2013, “Does the Confidential Process Create Value?”, finds that changes between confidential draft registration statements and later IPO prospectuses reveal SEC concerns and point to firm quality, and that underwriters incorporate the favorableness of those revisions when setting IPO pricing.

Understanding potential SEC concerns before the comment letters become public may be valuable to investors because not all disclosure is created equal. For instance, some information is included because management voluntarily chose to highlight it, while other information appears only after the SEC identified omissions or asked the company to balance promotional statements with additional risk disclosure.

That raises a natural question for high-profile IPOs such as SpaceX: can investors decipher the likely areas of SEC concern by comparing the initial draft registration statement against the later final public S-1?

We started our analysis by comparing changes between the initial DRS filed confidentially on March 30, 2026, and the subsequent public S-1 dated June 30, 2026. Practitioner guidance from law firms (e.g., Mayer Brown) and accounting firms indicates that SEC comments on IPO filings frequently focus on MD&A disclosure, KPIs and operating metrics, non-GAAP measures, risk factors, and disclosure that appears overly promotional or unsupported.

Several categories of changes in the public Space Exploration Technologies Corp. (SpaceX) S-1 resemble the types of revisions commonly prompted by SEC comments during confidential review. Please note that we do not attempt to provide a comprehensive analysis of the differences between the two prospectuses but to identify examples of changes in language that, based on historical experience, are consistent with the types of concerns raised by the SEC. It is also possible that some of the changes that we identified were preemptive, that is they were introduced based on legal advice to avoid SEC comments and review-related IPO delays.

We’ll discuss the specific changes after the paywall.

Read more

Today’s newsletter is free for all.

Part 2 will provide some history and context and, then, tell you what’s really behind the push this time, supported by data.

Part 2 will be behind the paywall, so please consider becoming a paid subscriber to The Dig.

When I teach business students, candidates for the masters in accounting graduate degree, and journalists about auditor independence laws, I tell them the rules are there to maintain the fact, and the appearance, of auditor objectivity and integrity, of auditors free of conflicts of interest. This is all for the benefit of shareholders and to insure the integrity of capital markets overall.

That’s not me being a Pollyanna, goody-two-shoes.

That’s what the law, and the courts, including the U.S. Supreme Court, have said since I was in accounting school.

The U.S. Supreme Court, United States v. Arthur Young & Co., 465 U.S. 805 (1984), Decided: March 21, 1984:

By certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation’s creditors and stockholders, as well as to the investing public. This “public watchdog” function demands that the accountant maintain total independence from the client at all times, and requires complete fidelity to the public trust.

Auditors are required to exercise appropriate professional skepticism, gather sufficient appropriate audit evidence, adequately document work, and, particularly when there are red flags, require more sufficient evidential matter than representations from management. Auditors perform a key role on behalf of shareholders and capital markets in providing oversight of management’s financial reporting and they must perform that role with a skeptical eye and required independence and objectivity.

Over the last 40 years that I have been an accountant and CPA, in all kinds of accounting and auditing roles in industry, at banks, as an internal auditor in industry and of the firm itself including auditor independence compliance and business alliances at PwC, and an MD technology consultant at KPMG/Bearing Point and independently with P&L responsibility, as an academic, and now as a journalist with subject matter expertise, I have witnessed calls for tightening the auditor independence rules, then relaxing them, then strengthening them again, and now seeking to relax them again.

In 2020, in a four-part series here at The Dig on the state of auditor independence regulation, I quoted Barbara Roper, the former director of investor protection for the Consumer Federation of America, and an advisor to the SEC during the Biden/Gensler administration. She told me in an interview:

“Investors value audit opinions only if the auditors are independent. But audit firms have time and again shown they are either unwilling or unable to meet that most basic of standards.”

In an interview with Mark Maurer in the Wall Street Journal on December 8, 2025, EY partner now SEC Chief Accountant Kurt Hohl made the latest call for “modernizing” auditor independence rules. Hohl promised changes were not contemplated, yet, despite what he called the pressures on the global audit firms as a result of the growth of business alliances with the new AI companies:

WASHINGTON—The Securities and Exchange Commission is evaluating whether to change rules around conflicts of interest for auditors and their clients, how its audit watchdog handles inspections of accounting firms and the cost for companies of complying with requirements…

Maurer: What do you want to see change with the SEC’s auditor independence rules? The regulator last eased these rules in 2020.

Source: WSJ, October 16, 2020 “SEC Approves Changes to Ease Auditor-Independence Rules for Companies, Audit Firms The changes will make it easier for companies and audit firms to avoid violations, especially involving IPOs and lending relationships”

Hohl: The independence rules are fairly clear. You can’t have direct business relationships with audit clients. Where it gets complex is where you basically are partnering with a nonaudit client and that nonaudit client uses an audit client as part of their service delivery. That’s what adds complications to the situation. Looking and seeing how pervasive that is, looking and making sure and talking with firms to understand how that affects how they monitor and enforce their independence requirements is something that’s top of mind.

Maurer: Is that a greater issue amid companies’ AI partnerships and private-equity money pouring into accounting firms?

There are complications that AI adds to the business development relationship required under the auditor independence rules. Also private equity is buying some of these smaller accounting firms and making the decision that we don’t want to serve in the public company market anymore because it’s too expensive for us to operate in that space. Auditor choice is a priority. We want to make sure that companies accessing the public markets—we’re trying to encourage companies to come to the marketplace—have a choice of audit firms in which to pick from.

There’s nothing in the works to loosen the independence rule. But we want to take a look at how the changing business environment affects our independence rules to make sure that they continue to be fit for purpose in the environment. We’ll work closely with the commission in terms of our observations and how they apply to the current rules, and we’ll decide what to do at that time.

Then, in a shameless nod to the masters Hohl apparently actually serves, Hohl tells us why he plans to relax auditor independence rules now:

Maurer: What would a potential change to auditor independence rules look like?

Hohl: I talk to the private-equity firms all the time. Some of the things that I did in retirement was actually consult for PE firms. The focus was, hey, look, if you’re going to do this, there’s a cost to basically build a high-quality audit practice that serves the public markets. You have a lot more rules that you have to comply with and the expectation is the work that’s going to be done is going to be the highest quality standard.

That’s one of the things that I talk to PE firms about. If you’re going to do this, you’ve got to go all in in order to make the investments that are necessary to serve that marketplace and encourage them to stay in because we want competitive options available.

(I wonder what other things Hohl talks to the private equity firms about.)

Hohl is referring here to the rush by private equity firms over the last few years to roll-up and invest in public accounting firms and the evidence these firms are more interested in the firms’ advisory and tax practices than their public company audit practices.

Hohl’s predecessor as Chief Accountant, Paul Munter, warned auditors who serve listed companies to be careful when private equity comes calling.

“It is of paramount importance that public accounting firms foster a culture of ethical behavior with respect to all aspects of their professional responsibilities, including auditor independence.

As we noted at the outset, high-quality audits are critical to the process of disclosing financial information for the benefit of investors and serve an important gatekeeping function to help protect investors by ensuring that issues are promptly identified and addressed. The Commission has long-recognized that audits by professional, objective, and skilled accountants that are independent of their audit clients contribute to both investor protection and investor confidence.

Any perceived erosion of auditor independence or the profession’s ethics or integrity breaks down the critical gatekeeper role of public accountants and can, over time, lead to diminished investor confidence.”

The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession, Paul Munter, Acting Chief Accountant, June 8, 2022

And, yet, Hohl’s solution to the conflicts that are inherent in taking on the profound responsibility to investors for auditing public companies, for accepting the privilege of the government-sponsored franchise provided by securities laws that requires a PCAOB-registered audit firm to sign all opinions filed with the SEC by issuers, is to suggest independence rules that prevent conflicts of interest for private equity firms who invest in public accounting firms are in the way of capitalism.

Hohl’s reassurances that there was “nothing in the works to loosen the independence rule” were short-lived. Four months later, on May 7, 2026, the Wall Street Journal’s Mark Maurer reported:

The U.S. audit watchdog should rescind its rules around conflicts of interest for auditors and their clients and follow the Securities and Exchange Commission’s rules, which the securities regulator may change, an SEC official said.

The SEC plans to weigh revising auditor independence rules over the next year, starting with releasing informal, nonbinding guidance based on companies’ recurring questions, Chief Accountant Kurt Hohl said backstage at a conference Thursday.

The “backstage at a conference” reference gives me an opportunity to note as an aside the performative practice of reporting on government officials and their utterances that I used to hate when I worked for MarketWatch in DC.

On May 7, 2026, Baruch College in New York hosted its 24^th annual financial reporting conference and Kurt Hohl and Rich Jones from FASB were the kick-off speakers.

Did Hohl say more than what he said on his panel to a select few reporters invited backstage afterward in a “gaggle” or a “scrum”?

A media scrum is a chaotic attempt by a swarm of reporters to interview or photograph a celebrity, athlete, politician, etc, typically after formal remarks at a conference or event. Via the Christian Science Monitor:

When is a briefing not a briefing? When it is a gaggle. Anyone who didn’t already know gaggle got a chance to learn it Feb. 24. The meeting White House press secretary Sean Spicer held in his office that day instead of the usual daily live televised session in the White House briefing room was called a “gaggle.”

It made headlines because of who was excluded: The New York Times, the Los Angeles Times, CNN, BuzzFeed, Politico, The Guardian, and the BBC.

Gaggle sounds like fun. But its etymology should give defenders of press freedom pause. The word goes back to the late 15th century, the Online Etymology Dictionary reports. It was used “with reference to both geese and women (on the notion of ‘chattering company’).” The word may come from an Old Norse word for small goose or gosling.

In my experience, these post-formal remarks are push and shove matches that allow officials to posture and feign superiority over journalists, by deigning to provide access. Journalists are supposed to be deferential, which I have a hard time mustering. The access is available only to those invited, in the formal credentialed press contingent, and typically either provides no new content or very specific content the official wants to leak to select journalists. I have seen journalists not ask anything, stand around, and then wait for the permissioned walk down the hall with the official where the private questions and the answers don’t get heard by everyone else.

In this case, Hohl broke news in the gaggle, or at least provided a scoop the WSJ thought was important enough to repeat in a same day story.

Whatever…

So, why was Hohl so anxious to talk with journalists backstage after the Baruch panel? What is his motivation for stepping up activity now on relaxing auditor independence rules by rescinding any specific rules implemented by the PCAOB?

Hohl told the gaggle his motivation for making changes now is the potential conflicts that are developing between the largest audit firms. All of the big global audit firms are promoting near-total automation of the audit process by AI software from OpenAI, Anthropic, and Microsoft, while also signing business alliance agreements with those same companies to market the software and tools to their advisory and tax clients.

Rescinding the PCAOB’s rules could be followed by the SEC updating the rules to consider more complex issues, such as the effect of companies’ use of artificial intelligence agents in their financial reports on auditor independence, Hohl said.

The rules Hohl and his fellow EY-related regulators want to squash include one that has been around since even before Sarbanes-Oxley: Business Alliances

Rule 2-01 (b) of Regulation S-X (17 CFR 210.2-01.), amended under Sox to enhance auditor independence after the Enron/Arthur Andersen, provides the standard used to judge a business relationship between a company and its auditor or services provided to an audit client. Does the relationship create a mutual or conflicting interest between the accountant and the audit client? Examples of apparent and actual violations of the business alliance rules: EY/PeopleSoft, PwC/Thomson Reuters, Deloitte/ Autonomy/HP, PwC/Oracle GRC (Sprankle Case)

Violations of the business alliance rules led to the EY PeopleSoft enforcement action, which happened after SOx was passed but covered activity from the pre-SOx period. EY was banned from taking on new business for six months!

I identified the AI-related business alliances and the conflicts for the auditors of existing issuers and future IPOs like Anthropic and OpenAI.

You can now add that EY is likely the one signing Anthropic’s audit opinions in its pre-IPO state, that is if retired EY partner Kurt Hohl is still expecting any of the firms to follow existing law.

But there is more to this story.

The motivation for auditor independence relaxation also includes the enormous influence of private equity on the accounting industry and the related inherent conflicts that have already developed, as Hohl noted back in December to the WSJ. But there is another big issue that has been a lingering irritant to the largest global firms because it presents a regulatory enforcement risk, in particular for EY, the home firm of Hohl as well as PCAOB Chairman Jim Logothetis and FASB Chair Rich Jones. (The trio were referred to as the “EY Mafia” by one journalist that covers them.)

That lingering issue is tax services.

The easiest way to clear the path for the Big 4 global audit firms to offer any tax services, including contingent, value-based services, to any client, including audit clients, is to eliminate the PCAOB’s rules.

The PCAOB’s rules primarily adopt the original AICPA auditor independence rules that apply to everyone, whether signing audits for listed issuers or private companies and entities adopt to Generally Accepted Auditing Standards (GAAS) — the standards the PCAOB inspects and enforces against. Subsequent PCAOB GAAS rules clarify vague, compromise rules agreed to in the Sarbanes-Oxley Act in 2002 for auditors of public issuers and auditors of broker-dealers, in particular with regard to tax services.

These things take a long time to finalize, but that is by design not by default.

The PCAOB also gained responsibility for inspecting and enforcing GAAS for the auditors of broker-dealers, whether public or private, as a result of the Dodd-Frank Act in 2010. However, we are still operating under an “interim” program all tyhese years later and the auditors of broker-dealers are still fighting the PCAOB about the independence rules they are supposed to comply with.

There is a new proposal to finally finalize the program. Yeah, sure.

Via Soyoung Ho at Reuters Checkpoint News:

The Public Company Accounting Oversight Board (PCAOB) might finally move to craft a permanent program to inspect auditors of broker-dealers.

The PCAOB gained the authority to inspect auditors of broker-dealers in Section 982 of the Dodd-Frank Act in 2010, and the board has been inspecting them under a temporary program described in 2011 in Release No. 2011-001, Temporary Rule for an Interim Inspection Program for the Audits of Brokers and Dealers.

Since then, the board has been intermittently working on a rule proposal for a permanent program but has continued to experience delays. It is unclear exactly what the hold-up has been during previous leaderships, though there have been difficulties in figuring out the best way to shape the program.

Now, Securities and Exchange Commission (SEC) Chief Accountant Kurt Hohl wants the PCAOB to act. The SEC has oversight authority over the audit regulatory board.

“One of the things that we’ve asked the PCAOB to do is finalize their broker-dealer inspection program, so it’s no longer an interim but a finalized program,” Hohl said at the SEC Speaks 2026 conference hosted by the Practising Law Institute on March 20 in Washington.

Hohl did not provide details and did not take any questions from reporters after his panel discussion.

Kurt Hohl’s ultimate goal now is to relax the SEC’s own auditor independence rules, after getting rid of the PCAOB’s. From the WSJ on May 7:

Included in these broader plans is the potential end of separate independence rules from the Public Company Accounting Oversight Board, which the SEC oversees.

“They’re not really necessary, to be honest,” Hohl said. “If they rescinded their rules, they would rely on the SEC independence rules.”

The SEC, not the PCAOB, is ultimately responsible for setting independence rules, and it eased them in 2020. Auditors are intended to be objective assessors of financial information.

The PCAOB established independence rules using Association of International Certified Professional Accountants standards when it launched in 2003. Those rules, which some investors and regulators have criticized for being too industry-friendly, remain largely untouched from when the AICPA wrote them in the 1980s and ’90s.

“Some of those are actually in direct conflict with some of the more recent independence rules,” Hohl said, adding that creates unnecessary challenges for companies and auditors. “So we’ll get them to probably do something later this year on that.”

The PCAOB has made certain updates to its own rules, particularly related to tax services in 2005. Auditors are banned from providing tax services for contingent fees or commissions to public-company audit clients. It is unclear if rescinding the PCAOB rules would reopen the door for auditors to sell aggressive tax shelters to audit clients and charge them contingent fees.

The justifications for weakening the auditor independence rules are recycled, just as the need to strengthen them again periodically is created by the recurring commercialism vs. professionalism pressures. Regulators go through cycles of enforcement only to peter out again. The same rationales for relaxing the rules — dressed up by some new business model or innovation that “changes everything” — are reused every time the Big 4 want more ways to get a bigger piece of the client’s wallet — as we used to say at KPMG Consulting.

This time the same lame excuses about the need and free market obligation to encourage and support the global audit firms in their pursuit of new sources of revenue are being trotted out again. This time though, the Big 4 has hit the jackpot, because it has taken over the regulatory infrastructure with three retired EY partners in the three top industry regulatory roles. The Big 4 can finally have their way with no more meaningful obstacles.

They won’t dismantle everything completely. Regulation can benefit the regulated.

In his “Economic Theory of Regulation,” George Stigler demonstrated, for example, that major transportation regulations benefitted incumbent firms in the trucking industry at the expense of new entrants. He used these findings to argue more broadly that “regulation is acquired by the industry and is designed and operated primarily for its benefit.”

When the next “big one” hits, it will be good to have the PCAOB to blame.

Hohl and his colleagues commit a capitulation to commercialism rather than make any effort to preserve whatever professionalism is left.

Hohl and the PCAOB’s Logothetis, in particular, and the Big 4 leaders in general are not concerned about this Paul Atkins/Donald Trump SEC prosecuting the audit firms that provide prohibited tax services, for example, to audit clients. Auditor independence conflicts, especially the conflicts of interest related to the provision of tax services to audit clients, are rarely prosecuted in any administration, libertarian/anti-regulatory or reform-minded.

As I wrote, investigations over the years of prohibited tax services provided to audit clients have have typically died quietly.

From The Dig on March 17, 2022:

This latest Michaels piece, from March 17, is the one I want to talk about today.

Big Four Accounting Firms Come Under Regulator’s Scrutiny SEC has launched probe into how firms manage conflicts of interest caused by sale of non-audit services

There’s a lot of great information in this piece.

For starters, it’s a great scoop. Someone told Dave about the SEC investigation and he had the exclusive and likely exclusive follow-ups. Someone wanted this investigation to be known, but the SEC and the audit firms are not yet talking about it publicly. Second, the investigation is being led out of Miami.

The SEC’s Miami office last year sent letters seeking information about client work that could cause auditors to violate rules requiring they be independent of clients whose finances they inspect, sources say. They say the letters were sent to some smaller accounting firms as well as the big four: Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers.

The Big 4 firms either declined to comment or ignored his requests for comment.

Spokesmen for the SEC, KPMG and PwC declined to comment. A spokeswoman for Ernst & Young and a spokesman for ­Deloitte did not respond to requests for comment.

Michaels says in his story that the SEC’s Miami office asked the audit firms for information about all non-audit services for audit clients — information that is readily available to the SEC via issuer proxies, the PCAOB inspection data gathering process, and research firm Audit Analytics — but also for information on any cases in which the firms obtained contracts that reimburse them for losses caused by lawsuits over their work, or made fees contingent on a particular result or outcome, the sources say.

Typically, a high profile investigation, one that touches the core of the Big 4, would be led by SEC HQ in DC. For example, the 2019 PwC independence-related enforcement action that Dave mentions, where PwC paid $7.9 million in fines, was led by two SEC attorneys who are both based in Washington, D.C..

The 2014 KPMG case Dave mentions, where the firm paid $ 8.2 million to settle an SEC investigation that alleged it provided prohibited non-audit services such as book­keeping to affiliates of audit clients included a report of a non-prosecuted investigation that was a direct result of my reporting.

It’s been almost three years since I first broke the story of KPMG’s loaned tax staff arrangement with audit client GE. On January 24 the Securities and Exchange Commission (SEC) announced an $8.2 million settlement with KPMG over violations of auditor-independence rules. KPMG’s settlement includes pay back of some fees earned on the illegal services and some fines. The wheels of justice turn very slowly. Unfortunately, none of the companies involved were named…

I hope you will join me for Part 2, where I will provide some more history and context for this discussion and then tell you what’s really behind the push this time, supported by data.

Part 2 will be behind the paywall, so please consider becoming a paid subscriber to The Dig.

© Francine McKenna, The Digging Company LLC, 2026

I am in Chicago for family matters so I thought I would get together with old friend Mike Levin.

The video is about 55 minutes long. This was an experiment with Substack’s direct to video tool and there was one glitch, but it was my fault. I forgot to change the setting so my screen would not go blank so often. So, you will see a short freeze twice. But stay with us! I did not want to edit and screw anything else up! Our voices continue, we are still there, we take a a sip of our seltzers in those spots, and then we continue. Promise to be better next time!

Mike runs the Activist Investor newsletter and the Shareholder Primacy podcast with Prof. Ann Lipton. I wanted to talk with him about director independence, and in particular audit committee member independence, after hearing him say a few things on their April 29 podcast about some ad-hoc research he did.

We met downtown last Wednesday and Mike told me he thought the SpaceX S-1 would be public that day. Lo and behold he was right.

My friend and frequent collaborator Olga Usvyatsky of the Deep Quarry newsletter and I are working on something that speaks to the issues surrounding the SpaceX IPO that Prof. Lipton mentioned in the first part of their April 29 podcast. Stay tuned!

The Activist Investor

Resources and Advisory Services

By Michael Levin

Mike mentions his producers Free Float LLC, also the source for director dashboard data, a kind of “Moneyball” for selecting directors.

Mike Levin bio. Want to talk to Mike?

Thank you for tuning in!

Here are some recent and not-so recent but still golden academic papers about the impact of director and C-suite networks and social ties on accounting quality and on insider trading.

Get more from Francine McKenna in the Substack app

Available for iOS and Android

Get the app

© Francine McKenna, The Digging Company LLC, 2026

Exclusive CFO Journal

KPMG Taps Anthropic to Revamp Global Tax, Advisory Platforms

The Big Four firm will embed Claude on a platform that will house the majority of its nonaudit services

By Mark Maurer May 19, 2026

“KPMG is revamping how its global workforce will use artificial intelligence through a new deal with Anthropic that aims to make its tax and consulting services faster-moving and more efficient.

The deal marks the first time San Francisco-based AI company Anthropic will integrate its Claude tools on a Big Four tax platform. Some firms have made deals to provide employees with access to AI tools on the side without altering their main global platforms around Anthropic or its competitor OpenAI.

KPMG’s global tax and legal services lead the firm’s growth, with a nearly 8% increase in revenue to $9.3 billion in 2025. That’s compared with 6% for audit and 3% for advisory…

Anthropic has announced deals with accounting firms like Deloitte—which is a sponsor of CFO Journal—and PricewaterhouseCoopers, to develop industry solutions, among other things."

So which firm is remaining that does not have a business alliance and marketing conflict and can sign Anthropic’s audits? I think you can figure that out. Process of elimination leads you to the answer unless Kurt Hohl gets his way and any firm can do anything. In this case his firm wins either way!

We’ve used the process of elimination technique before to figure out which firm audits pre-IPO OpenAI.

Stay tuned for my deep DIG into auditor independence later this week and my review of this SEC’s effort to dismantle protections of what is supposed to be a “public watchdog”. The statement about the growth of tax services is very pertinent!

Footnoted.org’s Michelle Leder writes on LinkedIn:

Here’s the SEC’s press release.

I wrote: Raising the threshhold for large accelerated filers is backdoor way of eliminating more companies from required auditor internal control opinions. Used to have to pass legislation to water down SOx.

This from the press release basically tells the story of what they are up to :

"The proposed amendments would extend disclosure scaling and other accommodations currently utilized by smaller or emerging companies to approximately 81 percent of all current public companies. New public companies would enjoy these accommodations for a minimum of five years. The smallest public companies also would have additional time to file their annual and other periodic reports."

There is a lot more to say about this ridiculous and dangerous proposal, and I will do some data analysis of which Big 4 firms still do any SOX 404 work at all. You can bet on the fact that it now pales in comparison to tax and private equity work, and tax work for private equity.

In the meantime, take a look back at what happens when companies go public with chronic material weaknesses in internal control that don’t get fixed. And one firm in particular has repeatedly treated all its IPO’s like the citizens of Lake Wobegon, all of them are above average.

You can also read, again, my friend and co-author Mikhail Pevzner on the “optimal number of IPOs, Parts 1 and 2 here at The Dig.

There’s a key quote towards the end of his Part 2 that is relevant to the SEC’s latest proposal to roll back SOx, in particular SOX 404 auditor opinions on internal controls.

The benefits include broader investor access, broader participation in economic growth, and dispersion of information through public markets.

The costs include greater exposure to financial downside, particularly if relaxing standards invites weaker or riskier firms into public markets. The costs also include the real expense of maintaining the scaffolding necessary for public companies to function properly: governance structures, internal controls, compliance systems, and enforcement.

If incentives for public listing increase, enforcement must also increase to counterbalance the greater risk of misconduct. Yet enforcement capacity itself has constraints. Regulatory agencies operate with limited staffing and resources. Expanding the public-company universe while reducing enforcement capacity would increase systemic risk. How does the desire for more public companies jive with the recent SEC enforcement staff cuts and PCAOB audit regulator budget and staff reductions?[23]

Reducing disclosure requirements or exempting more firms from internal control audits may lower costs on the margin. But it is not clear that these reductions would meaningfully change firms’ decisions to go public, especially when cheap private capital remains abundant. One of the primary benefits of staying private is the ability to retain control longer. If founders can grow their firms without subjecting themselves to analyst scrutiny, boards, and regulatory obligations, modest compliance savings may not shift that equilibrium.

If regulatory changes increase the number of public companies by a modest amount—say several hundred—those additional entrants will likely be the firms most sensitive to small cost reductions. That raises an important question: what are the characteristics of those marginal firms?

If such firms are highly cost-sensitive, they may also be more reluctant to invest in internal controls, governance, and compliance protections. Indeed, in my own research, I personally came across documented cases in which firms were willing to disclose material weaknesses in internal controls likely because hiring additional accounting personnel was deemed too costly. [24]

If such firms are highly cost-sensitive, they may also be more reluctant to invest in internal controls and basic financial reporting capacity. I remember one year reading every single material weakness disclosure submitted to the SEC, and some firms essentially said the same thing: they had a material weakness because they did not have sufficient accounting personnel, and it was “too costly” to hire more accountants. They treated that as an acceptable risk: disclosing a material weakness does not necessarily mean there is already a misstatement or a restatement; it means they are acknowledging that the risk of producing bad accounting is higher, but they are not willing to incur the cost now.[25] And we know that firms in that position are precisely the ones that often end up with restatements later.

In that sense, the cost is paid either now—through stronger controls and staffing—or later, when shareholders absorb the consequences through stock declines. The question is not whether the cost exists, but when it is imposed and who ultimately bears it.

Such disclosures do not immediately imply restatements, but evidence shows that firms with material weaknesses are more likely to experience reporting problems later. The cost is borne either upfront, through stronger controls, or later, through investor losses.

In that sense, shifting costs forward or backward does not eliminate them. It reallocates them to the near future.

Maybe the Big 4 don’t want to do audit anymore! Maybe SOX 404 is just an irritant with their clients, even the largest ones. Non-stop focus on advisory and tax and strong deemphasis on audit, with the planned replacement of auditors with AI, sure makes me think so!

In other news of dangerous moves on the enforcement front:

Self-report fraud and walk free, New York prosecutors tell Wall Street SDNY attorneys that took on Drexel and SAC Capital adopt more lenient stance on corporate wrongdoing

Jay Clayton, US attorney for the Southern District of New York: ‘If you don’t report and we find it, we’re going to kill you’ © Ted Shaffrey/AP

Financial Times, Kaye Wiggins in New York MAY 14 2026

“Wall Street’s top prosecutors want lawbreaking companies to hand themselves in, offering behind-closed-door deals that let them avoid being charged, fined or having full details of their fraud made public. The lenient new deals are available even in cases where alleged fraud was pervasive, caused severe harm, involved senior leaders and had already been reported in the press or by a whistleblower.

Prosecutors might charge individuals, but they would not charge companies even if the wrongdoing was worse than originally admitted. They would also not publish details of the deals.”

If there’s no fine and the deals are secret there’s no whistleblower bounty.

If there’s no “public statement of fact” there’s no deterrence or information for shareholders or harmed consumers to use to know if they were cheated and should be reimbursed.

It’s the kind of program you use for criminal corporations and their executives after a fascist takeover to provide them amnesty from providing material support for crimes against humanity.

I was quoted a couple of weeks ago about the SEC’s terrible proposal to make quarterly reporting optional.

CFODive

SEC unveils blueprint for ditching quarterly reporting

The proposal is part of the “Make IPOs Great Again” push aimed at reducing the “rigidity” of rules governing public companies, SEC Chair Paul Atkins said Tuesday. Published May 5, 2026 Maura Webber SadoviSenior Editor

Francine McKenna, an adjunct professor at Montclair State University in New Jersey and author of the substack accounting newsletter “The Dig,” said she was strongly opposed to the proposal, calling it a misguided attempt that addresses the quantity rather than the quality issue that is already affecting financial reporting.

Many companies put out financial reports with non-standard non-GAAP numbers in earnings releases and conference calls, and the less frequent filings will mean investors will need to wait longer to get more clarity on what is going on at a given company.

“The emphasis on alternative and non-GAAP metrics is only going to increase,” McKenna said in an interview.

If you want to track the comment letters to the quarterly reporting propopsal, my friend and co-author Tzachi Zach of Ohio State has built a neat tracking tool. As you will see, without a flood of fake comment letters in support, the sentiment is for now overwhelmingly against the proposal.

There has been a lot written pro and con about the proposal.

Here’s a really great comment letter from someone at Reddit purporting to speak for the famous Wall Street Bets forum.

Bainbridge on Corporations

Redditors For Quarterly Reporting

As we know, the SEC recently announced a proposed rulemaking that would give companies the option of shifting from quarterly to semi-annual reporting. As regular readers also know, I support the shift…

Read more

2 months ago · 2 likes · Stephen Bainbridge

Of course, Professor Bainbridge finds a lot of fault with it. (I love it!)

I respect Profesor Bainbridge, but he thinks optional quarterly reporting is a great idea. Ugh!

Bainbridge on Corporations

Letter of Comment to the SEC re Optional Semi-annual Reporting in Lieu of Quarterly Reports

I have submitted a letter of comment to the Securities and Exchange Commission regarding Proposed Amendments to Exchange Act Rules 13a-13 and 15d-13—Optional Semi-annual Reporting in Lieu of Quarterly Reports on Form 10-Q (File S7-2026-15…

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2 months ago · 2 likes · Stephen Bainbridge

I have had other cause to read a lot of Enron material recently. I will leave you with this comment, one that came right after the implosion, before even Arthur Andersen disappeared. (This guy thought Paul Volcker could pull it out…)

This was written by Robert Litan in April 2002, for the Brookings Institution. It is incredible that some want to go backward, implying companies don’t have the means 24 years later to report more frequently and accurately and not less so.

That’s just nuts!

The Enron Failure and the State of Corporate Disclosure

Daily Financial Reports?

Using the Internet, many companies now or may soon have the ability to make their financial reports available to the public much more frequently than once a quarter. Indeed, financial institutions typically balance their books every night. Why not consider ways to have this financial information communicated to the public in the same time frame?

There will be objections to encouraging companies to make available frequent and unaudited financial information, but these objections can be met. Currently, quarterly financial data are unaudited and will remain that way unless the SEC or a new PRB come up with guidelines for more limited audits of data that is more frequently reported. In any event, the capital markets would become much more volatile if investors came to believe that all unaudited financial information was useless.

There is an even more compelling case for more frequent financial disclosures. Former SEC Chairman Arthur Levitt was one of the first to sound the alarm about the seemingly uncontrollable trend toward earnings management-or the manipulation of quarterly earnings reports to achieve or exceed market expectations, which is evidenced by the significant increase in earnings restatements over the past few years. If, however, companies routinely reported their financial results more frequently than every quarter, it is conceivable that investors and analysts would lose interest in the quarterly figures. Furthermore, it is highly doubtful that analysts would take the trouble to develop earnings forecasts more frequently than on a quarterly basis. Thus, there is a real chance that more frequent reporting could end incentives of managers-and their auditors-to engage in earnings management. The challenge is to find a way to provide incentives to the firms that are able to report more frequently than quarterly to do so.

© Francine McKenna, The Digging Company LLC, 2026

They say cats have nine lives. Super Micro Computer appears to be using several of them. The broader issue for Super Micro is that the various crises increasingly appear interconnected rather than isolated.

In the past several years, Super Micro has faced:

• auditor resignations;

• delayed filings;

• material weaknesses;

• governance concerns;

• short-seller attacks;

• C-suite departures, including recommendations to replace the CFO;

• export-control scrutiny, regulatory investigations including SEC subpoenas;

• customer-concentration risks; and

• now criminal indictments of individuals tied to the company for AI hardware exports.

We’re going to briefly review the history of Super Micro’s troubles observed in the last few years, and then, after the paywall, we dig into Super Micro’s Cash, Accounts Receivable, and Inventory and review the corresponding metrics to make a comment on Super Micro’s acute “working capital and liquidity” challenge.

Background

The latest chapter began in March 2026, when the U.S. Department of Justice indicted three individuals — including a Super Micro co-founder and board member — for allegedly conspiring to divert advanced U.S. AI technology to China in violation of export-control laws. Although Super Micro itself was not charged, the indictment pushed the company back into a position of a public issuer facing escalating questions about oversight, controls, governance, and management credibility.

But the roots of the current crisis stretch back much further.

In August 2024, short seller Hindenburg Research published a highly critical report accusing Super Micro of accounting and governance failures, related-party issues, and problematic sales practices. Shortly afterward, the company delayed its annual Form 10-K filing and began assessing its internal controls.

The situation escalated dramatically in October 2024 when Super Micro’s auditor EY made a noisy resignation after only a short engagement and without issuing the fiscal year 2023 audit opinion. EY disclosed it could no longer rely on management or the Audit Committee — an extraordinarily serious statement to make. Accounting observers immediately interpreted the resignation as potentially indicative of deeper governance or compliance problems, triggering widespread speculation about possible SEC scrutiny.

Francine was quoted by Fortune magazine:

Accounting expert Francine McKenna told Fortune that the EY resignation went beyond the usual quiet exit auditors make when they slip away from an engagement. “There are noisy resignations and then there are resignations that bang a big giant gong—and this is as bad as it can get,” said McKenna, who authors The Dig newsletter.

In its resignation letter, EY wrote that it was no longer able to rely on management and the board’s audit committee, which is supposed to be made up of independent directors who oversee the company for the benefit of shareholders. “When you can’t rely on management, that’s bad,” said McKenna. “If you can’t trust the audit committee, there is something very wrong.

Former regulators and compliance professionals publicly suggested EY may have filed a Section 10A notice with the SEC. Whether EY filed a Section 10-A notice to the SEC in conjunction with its resignation has not been publicly confirmed. From The Dig:

Did EY file a 10A? That’s what Ms. Lynch is implying.

Section 10A of the Securities and Exchange Act of 1934 requires reporting by auditors to the Securities and Exchange Commission (SEC) when, during the course of a financial audit, an auditor detects likely illegal acts that have a material impact on the financial statements and appropriate remedial action is not being taken by management or the board of directors.

In November 2024, Super Micro hired BDO USA to replace EY in an effort to complete delayed filings and regain Nasdaq compliance. The company also formed a Special Committee supported by law firm Cooley LLP and forensic firm Secretariat Advisors to investigate Hindenburg’s and EY’s allegations.

In December 2024, the Special Committee largely cleared management and the board, concluding that there was no evidence of executive misconduct, no restatement was required, and the Audit Committee had acted independently. The Committee also specifically addressed export-control compliance, stating that it found no evidence that anyone at the company had attempted to circumvent export restrictions or knowingly divert products to prohibited jurisdictions.

The Committee also recommended replacing the CFO. Super Micro moved quickly to elevate Kenneth Cheung as the CAO and principal accounting officer but, according to Fortune, CFO David Weigand, who was expected to stay until a replacement is found, remains in the job more than 14 months and four quarters later. There hasn’t been an update on the search since. Weigand spoke with analysts when the company announced its third-quarter 2026 earnings results, and signed off on the 10-Q and the company’s internal controls.

The Committee’s conclusion regarding export controls and the propriety of the rehire activity led by Weigand is, in hindsight, especially notable because one of the individuals later indicted in the DOJ export-control case was co-founder and board member Yih-Shyan Liaw. He is a former senior executive who had previously left the company during earlier accounting-related scrutiny and then was rehired. The Special Committee had reviewed and effectively endorsed Weigand’s rehiring decisions, including Liaw.

The Committee also reviewed revenue-recognition practices, quarter-end sales activity, customer concentrations, delivery timing, returns, and warranty practices. Despite reviewing 52 sales transactions — including transactions highlighted by EY — the Committee stated that it did not disagree with the company’s revenue-recognition conclusions and found no evidence of a pattern of shipping incomplete products near quarter-end to accelerate revenue recognition.

Even after the internal review, regulatory pressure continued to build.

In February 2025, Super Micro disclosed that both the SEC and DOJ had issued subpoenas related to the Hindenburg allegations and delayed filings. At the same time, securities litigation and derivative lawsuits began accumulating. Management reiterated that the Special Committee had found no support for EY’s allegations, while emphasizing that the company was expanding its leadership team across finance, legal, compliance, and operations.

The company also disclosed changes to previously announced preliminary unaudited financial results for the quarter ending June 30, 2024, including additional inventory charges. Although management continued to assert that no formal restatement was required, no restatement does not equate to the absence of errors.

In August 2025, Super Micro revealed in its 10-K for the year ending June 2025 that the company still faced extensive unresolved material weaknesses in internal control over financial reporting. These included deficiencies involving:

• information-technology general controls;

• segregation of duties;

• completeness and accuracy of financial-reporting information; and

• related-party disclosure controls.

The remediation effort is massive. Super Micro disclosed broad ERP redesign projects, segregation-of-duties remediation, enhanced compliance programs, expanded review procedures, and major personnel changes across finance and compliance functions. Professional-service expenses surged as the company relied heavily on external auditors, consultants, legal advisers, and remediation specialists. Audit fees increased from $4.8 million in fiscal 2023 collected by Deloitte, to $8.6 million in 2024 and $8.1 million in 2025 collected by BDO.

Yet even after those efforts, the problems remained unresolved.

In its most recent 10-Q, as of March 2026, Super Micro disclosed that the same core material weaknesses identified in 2024 remained unremediated, including IT controls, segregation-of-duties conflicts, deficiencies in information completeness and accuracy, and related-party disclosure weaknesses. The company acknowledged that these weaknesses could increase the risk of unauthorized system access, data manipulation, and financial misstatements.

Export Control Issues and Internal Investigation

In a previous piece, Olga examined how the March 2026 DOJ indictment involving certain Super Micro employees and intermediaries raised broader questions about the company’s export-control oversight, customer relationships, and financial reporting risks.

Her analysis focused not only on the alleged diversion of AI servers to China, but also on the potential impact on Super Micro’s relationships with suppliers and customers, such as Nvidia and Oracle, in an environment of tightening export-control enforcement and increasing political scrutiny of AI infrastructure supply chains. Olga discussed how the issue potentially extends beyond the immediate legal exposure associated with the DOJ indictment and into broader commercial and operational questions: whether large AI customers may reassess supplier risk, whether suppliers may increase compliance expectations and oversight, and whether counterparties may become more sensitive to reputational and regulatory risks associated with export-control investigations.

The fiscal Q3 2026 earnings call following the indictment demonstrated how central the issue had become for investors. Analysts repeatedly questioned management about export controls, customer confidence, regulatory risk, and whether large AI infrastructure customers might shift business to competing server vendors. Questions also focused on whether the investigation could affect Super Micro’s relationships with key suppliers such as NVIDIA.

For instance, Ananda Baruah of Loop Capital explicitly asked whether customers could become “skittish” and shift purchases to competing AI server vendors in light of the export-control allegations. CEO Charles Liang responded that, based on the company’s communications with customers, he did not “feel a negative feeling” at that moment and emphasized that Super Micro continued to expand its customer base.

On the other hand, Victor Chiu with Raymond James asked, in no shy terms, whether the investigation could reflect Super Micro’s relationship with Nvidia:

Does the investigation, you know, around the, that may potentially impact, you know, your relationship with NVIDIA, you know, subsequently, you know, your allocation or supply of GPU and other components? Cause I think that’s another really frequent point of concern that we get from clients these days is, you know, how that impacts your relationship and, you know, whether or not that’s the dynamic there has changed at all.

Super Micro confirmed there was no change in the relationship and that it remains strong.

Management attempted to reassure investors that all customer relationships remained strong and that no restatement was expected. However, beyond confirming that the investigation remained ongoing, the company provided little substantive detail regarding the scope, findings, remediation progress, or expected timeline of the investigation.

Super Micro did, however, update in the May 12, 2026, 10-Q filing its disclosure regarding the ongoing SEC investigation by stating that it received an additional subpoena from the SEC Enforcement Staff on April 28, 2026:

On November 19, 2024, the Company received a subpoena from the U.S. Securities and Exchange Commission Enforcement Staff in connection with an investigation entitled In the Matter of Super Micro Computer, Inc. The Company continues to produce documents in response to the subpoena. The Company received another subpoena on April 28, 2026. The matter is too preliminary to form a judgment as to whether the likelihood of an adverse outcome is probable and we are unable to estimate the possible loss or range of loss, if any.

The updated language is important because, despite volumes of documents that the SEC had already requested and received so far, it has now asked for more.

Broc Romanek is a former staffer in SEC Corp Fin office of Chief Counsel and advisor to an SEC Commissioner. He is now a strategic advisor to law firm Cooley LLP. Romanek told us, “This is not unusual. Investigations tend to expand if SEC Enforcement finds something interesting.”

Former SEC Enforcement attorney Greg Bruch, now leading his own firm, agrees. “Oftentimes, the first subpoena is broad enough to encompass everything, so the successive rounds are memorialized in letters where the staff asks for things that were not previously produced. A second round of subpoenas may mean that the Staff has found a new area of inquiry that is not covered by the first wave.”

New “interesting” areas of inquiry for the SEC is not good news for Super Micro.

Super Micro’s Working Capital Challenge

Meanwhile, Super Micro’s current financial condition as of May 15, 2026, based on its results for the quarter ending March 31, 2026, presents what appears to be a working capital and liquidity challenge.

The chart below tells the tale.

Data source: Calcbench.

• Days Sales Outstanding (DSO), a metric used to measure how quickly the credit sales are collected, rose from about 49 days in the December 31, 2025, quarter, to 86 days in the March 31, 2026, quarter, according to data from Calcbench. (Note that Calcbench relies on as-reported net account receivable balances to calculate DSO. The allowance for credit losses was $488 k and $0 at March 31, 2026, and June 30, 2025.)

• Days Payables Outstanding (DPO), which measures how long it takes to pay suppliers, increased from about 58 days in December 2025 to 86 days in March 2026.

• Days Inventory Held (DIH), a proxy for how long it takes to convert inventory into sales, remained elevated compared to historical levels, reaching 107 days in the March 2026 quarter.

After the paywall, we dig into Super Micro’s Cash, Accounts Receivable, and Inventory and review the corresponding metrics to make a comment on Super Micro’s acute “working capital and liquidity” challenge.

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I was reminded of this quote by Professor Bonnie Honig who has a new article out in the journal Theory & Event, “Arendt’s Eichmann in Jerusalem, a Second Red Scare Text for our Third Red Scare Moment.” She is currently in residence as Spinoza Professor of Philosophy at the University of Amsterdam. Her many books include A Feminist Theory of Refusal (Harvard 2021) and The Accidental Ordinary: Language, Politics, Metamorphosis (forthcoming). She is at bonnie_honig@brown.edu.

“We have only a little time to please the living, But all eternity to love the dead.” Sophocles

I’ve got quite a few reports coming up that will be behind the paywall: on the way pre-IPO companies are leaking results to reporters, updates on Amazon, Tesla, Snap, and Disney, my first person take on the Jefferson Wells sale to Sikich, and some recommendations for summer reading! So, today is a long update, free for all, covering some news and notable happenings in professional services, especially the Big 4.

My university teaching term is wrapping up at Montclair State University where I have been teaching the undergraduate non-accounting majors survey of financial and managerial accounting class and an accounting ethics class for the MAccs. I’ve canceled some commitments to be able to focus on family matters this summer, but will be back at Montclair, and University of Cambridge, in the fall.

Journalism activities coming up include attending SABEW here in Philadelphia next week, in particular to honor my friend Andrea Riquier who is receiving a prize for her reporting on heirs’ property for USA Today. Later, I’ll continue my multi-year stint as a preliminary judge for the UCLA Loeb Awards. That’s made possible — as much as I love LA — by this year’s judging being on a remote basis. I can’t wait to read your entries!

1. BDO is whacking a lot of moles these days.

The FT’s Stephen Foley on LinkedIn:

First Brands selected BDO as its auditor due to the accountancy firm’s “less rigorous” approach, a former senior employee of the bankrupt auto parts maker told a court-appointed examiner. The claim has prompted a response from BDO that I think is worth setting out in full, since the examiner’s investigation will have significant implications for BDO’s reputation, and financially for the firm.

My story with Robert Smith, which notes that First Brands’ founder denies fraud, is below:

…The court filing, by Martin De Luca, a Boies Schiller Flexner partner who was appointed as examiner in January, cited a former senior employee who recalled a discussion “in which BDO was described as preferred among the larger firms based on its audit approach, which was viewed as less rigorous”.

The executive also said BDO was characterised as having “the most unsophisticated audit process”, meaning “[w]e can do what we want with these guys”, the report said. Restructuring advisers appointed to oversee First Brands’ bankruptcy estate also reported to the examiner that “much” of BDO’s audit “was conducted remotely, without on-site presence at corporate locations”, according to the report. “Witnesses reported that BDO did not directly access underlying enterprise systems, such as Oracle or SAP, and did not consistently perform independent verification in certain areas, including customer confirmations, manual journal entry testing, or analysis of cash activity around period-end,” the examiner wrote.

Witnesses recounted that verification and analysis in these areas could potentially have surfaced accounting discrepancies. BDO USA’s chief executive Wayne Berson last year said ‘no one has accused the firm of doing anything wrong in connection with our role as auditors’.

Witnesses also reported to the examiner that First Brands “effectively” maintained “two sets of books”, one reflecting its underlying performance and another reflecting heavily adjusted financial metrics.

And now the lawsuits have started.

First Brands’ creditor sues BDO over car parts maker’s collapse

Hedge fund Black Diamond claims at least $70mn in damages against audit firm

Stephen Foley in New York and Robert Smith in London Apr 30 2026

What’s nice is that there is a bankruptcy examiner. I’ve written many times that this helps to bring auditors to account. (There was a bankruptcy examiner on one of the most notable cases, EY and Lehman, but no bankruptcy examiner in many other notable cases such as MF Global audited by PwC.)

There’s also news of another very problematic BDO client, one the firm took on when a Big 4 firm walked out:

Strengthening the compliance team to signal active remediation efforts is an expected move for a company whose co-founder was among those indicted by the DOJ, especially given an additional ongoing SEC investigation.

In contrast, the Company’s decision to engage a forensic accounting firm — announced via April 7, 2026, press release — points to a more consequential development: a full-scale internal investigation that extends beyond a routine compliance buildout into a targeted review of transactions, controls, and financial reporting given the indictment of the individuals associated with Super Micro:

“SAN JOSE, Calif., April 7, 2026 – Super Micro Computer, Inc. (NASDAQ: SMCI) (“Supermicro” or the “Company”) today confirmed that an independent investigation is underway regarding the March 2026 indictment of three individuals who were associated with the Company at that time…

The investigation is being led by two independent members of the Company’s Board, Scott Angel, Lead Independent Director, and Tally Liu, Chair of the Board’s Audit Committee, who will report their findings and conclusions to the other four independent members of the Board….

The Board’s independent directors have retained Munger, Tolles & Olson LLP (”MTO”), a top-ranked law firm with five decades of experience leading independent investigations. Additionally, MTO has retained AlixPartners as an independent consultant, bringing deep expertise in forensic accounting and audit committee investigations. MTO, AlixPartners and the independent directors will work in close coordination with BDO USA, P.C., the Company’s auditor. MTO and AlixPartners will report their findings directly to Messrs. Angel and Liu.”

Notably, this is the second internal investigation announced by Super Micro in less than two years and the Company has engaged a different law firm and forensic accounting firm than for the first investigation. In August 2024, Super Micro initiated an internal investigation after its auditor at the time, EY, raised concerns about the integrity of management and subsequently resigned without issuing any opinions, prompting the board to form a Special Committee of independent directors. Supported by external counsel and forensic advisors, the review focused on governance, transparency, and control processes, including communications with the auditor, internal control over financial reporting, revenue recognition practices, rehiring of former employees, export control compliance, and related-party transactions.

And on the Continent, BDO makes news of the negative kind.

On April 24, there was a bombshell report that was not widely seen because it is in Dutch. I spoke to the reporter, Wilbert Geijtenbeek an independent financial investigative journalist based in Amsterdam, Netherlands. You can follow his reporting, which focuses on the professional and financial services industry in Europe, on LinkedIn. His reporting interests range from fraud cases to the changing landscape of the accounting profession because of investments by private equity firms. He knows his way into the commercial registries of most European jurisdictions and speaks Dutch, English, French, German, Hebrew.

Gazprom accountant turns out to be BDO CEO of Iraq

Accountant.nl Friday, April 24th, 2026 Ceo of BDO Iraq involved in sanctioned Gazprom-audit Wilbert Geijtenbeek

The annual accounts of a Gazprom-subsidiary have been audited by the CEO of BDO Iraq. BDO Global does not reply to questions about involvement of its local subsidiary in the audit of the sanctioned Russian state energy company.

At the time of conducting the illegal financial statement audit of a Dutch Gazprom subsidiary, auditor Ali Ghalib was the CEO of BDO Iraq. Yesterday, this site announced that the Dutch Financial Authority AFM is conducting an investigation into the financial statement audit by Ghalib, who has not been registered as a chartered accountant in the Dutch CPA register and whose firm does not hold a Dutch AFM license.

Villa 6 in Baghdad

The firm Ali Ghalib & Co is based in Baghdad, Iraq. Under the name of that firm, Ali Ghalib (full name Ali Ghalib Abbas Al-Azzawi) he has signed the audit report on the 2024 financial statements of Netherlands based Gazprom Neft Badra BV – a Dutch subsidiary of the Russian state energy company Gazprom.

How many other instances are there of such “freelancing” by individuals who are signed up in loose marketing agreements with firms like BDO? Are they signing audits that the Big 4 officially can’t do? Wilbert Geijtenbeek continues to dig.

But you may recall I wrote about stray Russian firms still on the PCAOB roster.

And yet, BDO jumped on the redundancies bandwagon in mid-April, announcing it is cutting partners. Via Consultancy.uk:

Mid-tier advisory BDO looks to have challenged this trend, however. While the firm is still looking to push ahead with its own technological innovation programme, it is also planning to cut around 6% of its total partner headcount. As reported by the Financial Times, the firm is set to cut 31 partners – many of them senior members, who were expected to retire soon, or were hires from rivals – as it looks to make room for younger staff.

Speaking to the Financial Times, a spokesperson for the firm confirmed, “To ensure we are a partnership operating at peak performance in high-growth areas, a small number of partners from each business area is leaving the firm, with some partners having brought forward their existing retirement plans.”

The Financial Times article mentions the bogeyman under the bed:

The cuts come as private equity investment is shaking up the accounting sector.

In 2024 Grant Thornton, BDO’s mid-market rival, sold a stake to buyout group Cinven in a deal that valued it at about £1.5bn. Wealth manager Evelyn Partners has sold its professional services business to Apax Partners. PE firms have also been buying up and merging smaller regional firms. The FT has previously reported that BDO was exploring using private capital to fund mergers between its regional firms. BDO also announced in November that its UK and Ireland entities would combine to increase scale.

The Netherlands is a hub for Big 4 shenanigans! See here, here, here and finally here, a really interesting paper by Dominic Detzen of Vrije Universiteit Amsterdam, that describes the deterioration of professionalism and trust in the Netherlands Big 4 environment and at KPMG, in particular.

By then, the media had also begun to scrutinize the Dutch audit firms more broadly. This was driven by the AFM’s inspection reports that, starting in 2010, chastised the firms for delivering inadequate audits and urged them to undergo structural change. For KPMG, the inspections triggered a fine of 900,000 Euros due to ‘insufficient’ quality control procedures (Het Parool, 2013, June 3).

In addition, following the financial crisis, a number of corporate incidents were revealed that, to the press, suggested that the profession and foremost KPMG had lost ‘its connection with the public’ (FD, 2012, May 3).

At the housing corporation Rochdale, the firm had overlooked the fraud committed by management and was dismissed for ‘failing its duty of care’ (FD, 2010, February 15). At another housing corporation, Vestia, KPMG initially approved the accounting for a large derivative portfolio that went on to threaten the entity’s existence, only to revoke its audit opinion soon thereafter (FD, 2012, April 28). More gravely, KPMG agreed to pay seven million Euros to settle an investigation into its role at construction company Ballast Nedam. In the early 2000s, three of its auditors had helped the company conceal large-scale bribery payments, such that KPMG had been confronted with charges of partaking in a criminal organization (De Telegraaf, 2014, January 2).

In addition, it became known that the management of Royal Imtech, another construction company, had ‘deliberately prepared incorrect financial statements,’ all the while receiving a clean opinion from KPMG (FD, 2012, December 10), which, along with pervasive fraud and mismanagement, led to Imtech’s bankruptcy in 2015. It was later revealed that KPMG was fined 1.2 million Euros by the AFM for its role at Imtech, having violated ‘fundamental principles of expertise and care, as well as professional conduct’ (cited in NRC, 2017, June 20).

2. The “not enough attrition” rationale for layoffs has trickled down to the next tier and regional firms.

Fewer staff, more AI automation means more concentration at the top. That fits with the drive to put the accountability at the firm level not the individual level, but how does that square with cutting partners, too? And what about the ongoing “accountant shortage” narrative?

CFA’s Sandy Peters explained in a letter to the FT (gift link) why concentrating accountability at the firm rather than the individual level is an abdication by regulators.

I wrote about the firms’ wish to shift the focus to individual accountability here:

What’s the latest?

The WSJ’s Mark Maurer (gift link) hints at a few other instances where “low attrition” has been a part of the Big 4+ layoff story.

Many accounting firms are working to undo the overhiring that they did during the pandemic. Firms have experienced lower-than-expected levels of voluntary attrition for years, which has contributed to layoffs. KPMG, for example, is cutting 10% of its U.S. audit partners after years of pushing more of them to voluntarily retire early.

That piece linked to two 2023 articles that documented cuts of staff and partners at EY and KPMG. This one:

The accounting firm is laying off dozens of U.S. partners, The Wall Street Journal reported this week, a rare tactic that extends ongoing job cuts to the top echelon of one of the Big Four firms. That followed the roughly 5% cuts to KPMG’s U.S. workforce this summer, which also included partners.

While EY, KPMG and Deloitte have collectively laid off thousands of U.S. workers this year, partner layoffs are far less common in the industry. Firms generally have to buy out the partner’s equity and make an additional payment based on the person’s seniority and tenure when they leave, said Tom Rodenhauser, managing partner at Kennedy Research Reports, which tracks the consulting industry…

Deloitte cut 1.5% of its U.S. staff in April. The firm added that this was a continuing process: “Based on moderating growth and very low levels of voluntary attrition, we are taking modest personnel actions where necessary,” a spokesperson said.

And this one:

EY and other accounting and consulting firms are dealing with slowing revenue growth, leading several of them to pare their ranks. The firms aggressively hired people during the pandemic, propelled by higher demand for consulting in areas such as corporate strategy and digital transformation. In the wake of the pandemic, attrition has been slower than firms anticipated.

In early April there were reports of KPMG UK cutting all over and attributing it to low attrition. Via Consultancy.uk:

KPMG is set to lay off more than 500 staff in the UK, with the cuts set to focus heavily on its audit business. As the Big Four firm looks to balance its headcount, a number of outlets have pointed to the redundancies as a sign of things to come for the sector, with AI taking on more junior roles – but the reality may not be so clean-cut.

Amid the UK consulting sector’s continued downturn, the largest entities in the sector have consistently been looking for ways to preserve their profitability. And increasingly, this is culminating in reports of job cuts, across the Big Four of Deloitte, PwC, EY and KPMG.

The latest such announcement to grab headlines comes from KPMG, where consultancy bosses reportedly told staff that some 440 assistant manager roles in the audit business would be cut. As published by Bloomberg, it was also said that 120 roles across the advisory arm would be axed.

A statement from KPMG’s UK wing confirmed, “In our audit business, alongside hiring for growth, we expect to see a regular pattern of natural attrition. But current market conditions mean our attrition rates are very low within certain parts of our audit population, which is why we are proposing to right-size those areas. This isn’t a decision we take lightly, and we will support our people throughout this consultation.”

KPMG US is reportedly now cutting audit partners.

KPMG and EY UK are also demoting some equity partners to salaried positions, the Financial Times reports.

3. Speaking of Forvis Mazars, there’s an interesting history of Mazars as the “years-long” Trump tax and accounting firm. The WSJ’s Mark Maurer hints at it in his recent article about the Mazars layoffs.

The cuts come two years after Forvis acquired the U.S. unit of Mazars as part of a new international partnership, creating a combined global audit and advisory network with roughly $5 billion in annual revenue. Forvis Mazars reported more than $5.7 billion in global revenue, up 11% from a year earlier, for the year ended in August 2025.

In the U.S., Forvis Mazars booked $2.2 billion for the year ended May 2025. That ranks it 10th among U.S. accounting firms, according to an Accounting Today ranking from March.

The Forvis Mazars partnership was part of a wave of consolidation sweeping professional services. Many accounting firms in recent years revised their ownership structure as they faced greater capital needs and difficulty recruiting workers. Dozens of these firms have sold stakes to private-equity investors, while other firms have struck deals with fellow accounting firms.

Forvis was formed from a merger of BKD and Dixon Hughes Goodman in 2022. Mazars served as the longtime accounting firm for President Trump’s company, the Trump Organization.

In May of 2020, Pro Publica did a very deep dive into the history of Mazar’s relationship with Donald Trump. It is more about individual partners’ relationships to the Trump family over the years than about the firm’s.

One theme has been consistent: partners and sometimes the firm itself have faced accusations of fraud, misconduct and malpractice on multiple occasions, an investigation by ProPublica and WNYC has found.

That pattern dates to the 30 years during which the Trump accounting team was led by Jack Mitnick, whose pugnaciousness was exceeded only by his aversion to his clients paying the IRS. He was the architect of the notorious schemes, revealed by The New York Times, to dodge more than $500 million in gift and inheritance taxes and funnel hundreds of millions from Fred Trump to his children, helping keep Donald Trump afloat through four of his business bankruptcies. Mitnick was known as an accounting star — at least until 1996, when his partners threw him out of the firm amid accusations of fraud and malpractice.

Years of turmoil followed. The firm operated without malpractice insurance for a period and was dogged by feuds — with current and former partners suing each other — and financial problems.

And it ran afoul of regulators. In January of 2004 — one week after “The Apprentice” premiered on NBC — the Securities and Exchange Commission formally censured the firm for willfully aiding and abetting misconduct. The SEC suspended one partner from practicing before it for four years for what the agency called “highly unreasonable” and “improper professional conduct.”

Since Trump’s accountants merged their practice into Mazars in 2010, they have been present for Trump’s scandals, too. Mazars accountants prepared the tax returns for the Donald J. Trump Foundation, forced to shut down and ordered to pay more than $2 million in damages after a New York attorney general’s investigation exposed a history of illegal self-dealing. And the Manhattan DA’s office, which is investigating whether the Trump Organization falsified its business records to cover up hush-money payments to adult film actress Stormy Daniels, subpoenaed not only Trump’s tax returns but also various internal records and assessments prepared by Mazars.

Today, the CEO of Mazars USA is the same partner who was suspended by the SEC for four years for improper conduct. (Mazars defends its CEO, saying he meets all ethical and professional standards, and asserts that the firm has encountered no more sanctions or litigation than other comparable firms.)

The choice of a formerly suspended accountant as CEO surprised former SEC Chief Accountant Lynn Turner, now a senior adviser at the Hemming Morse financial consulting firm. “In my opinion,” said Turner, “that speaks loudly with the respect to the confidence one would have in that firm — better yet, the total lack of confidence one would have in that firm. And it would certainly make me wonder about the culture of that firm and whether or not that firm acts with integrity.”

The American Prospect’s Dave Dayen wrote for The Atlantic in April of 2019 about Mazars’ work for Trump and more than a few times quoted my extensive work on the subject for MarketWatch.

For example, Theranos didn’t produce audited financial statements for years even as it duped investors into funding its overhyped blood-test ambitions. Theranos didn’t have a full-time chief financial officer, or an accurate budgeting and cash-flow forecast, until the middle of 2017, 14 years after it was founded and well after raising $700 million from investors. Those investors bought in after receiving marketing materials with financial projections that had little reality behind them. Sound familiar?

Read: The exasperating difficulty of trying to understand Trump’s finances

Critics have thoroughly questioned Uber’s financials, which have rather suspiciously become less sunny as the company works up to an initial public offering, when it will have to provide audited financial statements.

Even Warren Buffett, according to Francine McKenna at MarketWatch, “adjust[s] his bottom line with unconventional accounting, just like the Wall Street bankers and corporate CEOs he frequently criticizes for adjusting standard earnings to tell a better story.” (No one has credibly accused Buffett of taking advantage of investors.)

4. The Financial Times reports on KPMG’s retreat from federal audits:

KPMG is shutting its federal government audit business and shifting more than 450 US staff to other roles after losing a $60mn-a-year contract with the Pentagon. Elizabeth Bratton and Ellesheva Kissin in London, Stephen Foley in New York and Steff Chávez in Washington Apr 29 2026

The army was the largest single customer of KPMG’s federal audit practice, according to people familiar with the matter, and the firm is winding down contracts with other parts of the government.

A KPMG factsheet indicated the federal audit practice oversees the accounts of more cabinet-level agencies than any other firm, with clients including the Department of Justice, Energy, Labour and Transport, and the Treasury. It also previously audited the commerce and homeland security departments, though those engagements ended this year.

Staff were told of the decision to wind down the unit earlier this month, several told the FT, and some have already been placed in alternative roles. Others would shift to new jobs between now and the end of the final federal contract in 2030, they added.

It is true that KPMG has been auditing the accounts of more federal agencies than any other firm.

Despite its numerous scandals, some of which threatened the firm’s existence, the federal government never implemented an order of debarment. What is debarment?

From my legacy blog in June of 2019:

On March 11, 2019, David Middendorf, KPMG’s former national managing partner for audit quality and professional practice, was convicted by a federal court in Manhattan of four of five criminal charges, including conspiracy and wire fraud. Jeffrey Wada, a former employee of the Public Company Accounting Oversight Board, the post- Sarbanes-Oxley audit industry regulator was also convicted on three of four charges, including conspiracy and wire fraud.

Middendorf and four of his former KPMG colleagues—Thomas Whittle, Brian Sweet, David Britt, and Cynthia Holder—were accused of using confidential PCAOB information about which KPMG clients’ audits the regulator would be inspecting.

On October 29 former KPMG partner Thomas Whittle, KPMG’s then-national partner-in-charge for inspections, changed his plea, to guilty from not guilty on all five counts in the case of the alleged use of stolen confidential regulator information to subvert KPMG’s regulatory inspection process. Whittle, and Sweet, cooperated with prosecutors.

The conspiracy to commit wire fraud and wire fraud charges each carry a maximum prison term of 20 years. Middendorf and Wada were each acquitted of one count of conspiracy to defraud the United States (Count One) referring to defrauding the SEC.

KPMG also used the data to its competitive advantage to win a new audit of a Spanish bank, the Department of Justice and SEC alleged in their complaints.

“KPMG won BBVA audit with stolen data about rival’s inspections,” published June 21, 2018, describes how Brian Sweet, a former PCAOB executive who joined KPMG as a partner, used his contacts at the PCAOB to obtain highly confidential data about the audits of BBVA and Banco Santander, which were audited by rival firms. A local partner in Spain used the information to prepare a successful bid for KPMG Spain to take over the BBVA audit. (fm note 05/02/2026: KPMG is now accused of doing something similar in Australia. Here’s another update on KPMG and BBVA.)

One good reason you won’t see anything of substance from the SEC, in particular, is that that the regulator, and its chairman Jay Clayton, have gone out of their way to say, “Move along, nothing to see here.” (Of course, the PCAOB has no moral authority to fine or sanction KPMG in this case.)

SEC Chairman Jay Clayton also put out a statement on Monday, specifically addressing any concerns that KPMG audits may have to be withdrawn because of the alleged fraudulent manipulation of audit workpapers and post-audit additional work to cover up errors based on the illegal early warnings about inspections.

“Based on discussions with the SEC staff,” wrote Clayton, “I do not believe that today’s actions against these six individuals will adversely affect the ability of SEC registrants to continue to use audit reports issued by KPMG in filings with the Commission or for investors to rely upon those required reports.”(fm note 05/02/2026: Although the PCAOB did eventually sanction KPMG Audit head Scott Marcello who, ironically was the only one to maintain his sanction after the others’ insider trading convictions were voided based on a Supreme Court ruling.)

In addition, the SEC also did not want me to name the clients affected by the manipulation of workpapers based on the illegal tip-offs when I did so in June. They expressed what is now clearly shortsighted faux outrage at potential market disruption and, tut-tut, undeserved notoriety for those companies. Those issuer names and more, including more KPMG personnel and the whistleblower name, have all become public during the Middendorf/Wada trial.

But the real reason nothing more substantial either civilly or criminally will happen is that nothing has changed since 2005, and nothing changed after the financial crisis period 2008-10.

It took the KPMG tax shelter scandal in 2005 to bring regulators to the uncomfortable realization there is no contingency plan. The audit firms will continue to push the envelope on legality, ethics and self-interest with impunity even with a new regulator, the PCAOB, in town. We can no longer depend on “professional” disdain for reputation risk to promote self-policing within the firms and within the accounting profession.

In fact, the moral hazard may have even gotten worse, despite new evidence of the systemic corruption of KPMG after the criminal indictment four top U.S. audit practice partners, and conviction/guilty pleas of three of them, a director, and an employee from the PCAOB, as well as termination of the top U.S. audit partner.

While the US Treasury, via the IRS, was scaring the living daylights out of KPMG over tax shelter abuses in 2005 and the Department of Justice was considering indicting the firm, KPMG was busily auditing the Department of Justice and the US Mint. In 2007 and 2008 KPMG also audited the Department of Treasury’s Financial Management Service. Re: The Auditors, November 28, 2006:

KPMG is negotiating with the Department of Justice about its troubles while Department of Justice is negotiating with KPMG, their auditors, regarding their audits of DOJ financial statements… in addition to the “too few to fail” doctrine at work here, there was also an attitude on the part of KPMG of, “Hey DOJ losers, who are you to call us a mismanaged, uncontrolled mess?”

At the last moment, the Department of Justice changed their mind deciding against putting KPMG effectively “out of business” over the tax shelter fraud. Who made that decision? Deputy Attorney General James Comey and Attorney General Alberto Gonzales.

Details of the deal were announced at a Gonzales news conference on Aug. 29, 2005. The resolution, Gonzales said, “reflects the reality that the conviction of an organization can affect innocent workers and others associated with the organization, and can even have an impact on the national economy.”

Now you know where Eric Holder got the idea.

In fact, there was an explicit discussion about “debarment,” the potentially devastating consequence of anything short of full support and endorsement for KPMG by every branch of the government involved in determining whether the firm would be indicted in 2005.

Discussion Relating to Suspension/Debarment

[KPMG and its Skadden Arps attorney Robert] Bennett said that KPMG would like the Department of Justice (“DOJ”) as part of the resolution to issue a statement affirming that it would continue to use the Firm as its auditor. [David N.] Kelley responded by saying that he did not think DOJ had much of a choice but to continue with its contract with KPMG. He added that, if DOI says nothing to the contrary, then KPMG’s continued role as DOJ auditor would be a signal to the marketplace.

[Joseph I.] Loonan [of KPMG LLP] said that KPMG wanted to get an agreement from General Services Administration (“GSA”) that the fact the Firm had entered into a deferred prosecution agreement would not prevent it from being deemed “presently responsible” for purposes of federal contracting.

Kelley responded that there were so many agencies that he did not think KPMG could get all of the assurances it was seeking prior to entering into an agreement. Loonan said that the key was having GSA onboard. He suggested expediting GSA’s time frame for consideration of the issue. Kelley indicated that he would ”hear it out as it unfolds.”

[Judge Sven Erik Holmes, who KPMG hired to provide support in its negotiations] added, “We just want to front-run it a little bit. Kelley replied by saying that he would let us know if we could go ahead and have discussions with GSA.

I wrote:

KPMG, as auditor of the Department of Justice and the US Treasury, was concerned about debarment, a ban from working for the government. The ‘no debarment” deal was cut because, as [David] Kelley said, DOJ had no choice. KPMG was not debarred and continued unabated with all Fed government contracts. Later, after the crisis, KPMG would continue as auditor of Citigroup even after US owned almost all of the bank and could have forced a change.

This decision cemented the US government and general global regulatory posture of “too few to fail” with regard to the largest audit firms.

KPMG also remained auditor of Citi, the combined Wells Fargo and Wachovia where it had audited both banks, and Deutsche Bank, to name just the most notorious financial crisis bailout recipients who went on to more ignominy. Certainly the same “debarment” discussion takes place anytime one of the Big 4 audit firms skates close to the line, potentially subject to strong sanctions by the SEC or PCAOB, or maybe even civil damages a federal agency can control.

The “too few to fail” premise is the primary reason penalties are tough but not nearly anything close to anything that would stop the Big 4 train.

So what else hasn’t changed? (Even former Judge Sven Holmes is still around, playing a central role in the latest crisis.)

KPMG remains auditor of the Department of Justice. KPMG recently told the DOJ, the same DOJ that is prosecuting its partners, that it the agency has a significant deficiency related to inadequate financial statement preparation and review controls.

To facilitate its accounting of the Department’s daily activities, during fiscal year (FY) 2018 the DOJ continued the multi-year implementation of its new Unified Financial Management System (UFMS). Due to competing priorities faced by DOJ personnel in supporting the conversion of nine component organizations within the Offices, Boards, and Divisions (OBDs) reporting component to UFMS and planning for the conversion of the remaining five OBD component organizations in FYs 2019 and 2020, we noted that the emphasis placed on the Department’s financial statement preparation and review processes had not achieved the full level of rigor that is necessary to prepare timely and accurate financial statements in accordance with generally accepted accounting principles, and OMB Circular No. A-136, Financial Reporting Requirements. During our FY 2018 audit, the Department detected or we brought to the attention of the Department the following errors, for which the underlying causes were similar and pervasive.

Arguably KPMG would be forced to resign the Department of Justice audit—due to the sudden adversarial relationship with an audit client—the minute the agency filed any kind of charges against the firm, even if it did not result in a complaint, let alone an indictment.

(BTW, Deloitte did pay a hefty negotiated fine for DOJ allegations of False Claims Act violations related to Taylor Bean & Whitaker, despite no complaint filed, let alone an indictment. It’s the only regulatory action against either PwC or Deloitte or any of their partners for the TBW/Colonial Bank joint fraud. At $149.5 million it’s one of the largest audit related fines or settlements or damages awards ever against an audit firm and it got little to no media coverage.)

KPMG remains the auditor of the U. S. Treasury. In fact, KPMG recently told the Treasury that it has several significant deficiencies:

· a significant deficiency in internal control over cash management information systems and a significant deficiency in internal control over Federal debt information systems at the Bureau of the Fiscal Service, collectively representing a significant deficiency for Treasury as a whole;

· a significant deficiency in internal control over unpaid tax assessments and a significant deficiency in internal control over financial reporting systems at the Internal Revenue Service, collectively representing a significant deficiency for Treasury as a whole;

· two Anti-deficiency Act violations where the Treasury Departmental Offices expended amounts that were in excess of the available fund balance in fiscal year 2015;

· and noncompliance with requirements of FFMIA related to Federal financial management systems requirements.

KPMG replaced Deloitte as auditor of the Federal Reserve beginning in 2015. There are no publicly available records on the change but a source told me that Deloitte’s contract was for a 5-year term for the financial statement audits for calendar years 2007 through 2011, throughout the financial crisis, with five 1-year optional extensions. The Board exercised three 1-year optional extensions, then rebid the contract in 2014 awarding it to KPMG.

KPMG is also the beleaguered longtime auditor of the Commonwealth of Puerto Rico.

Does that look like a U.S. Federal Government that is willing to live without KPMG?

Well, rather than a debarment — which would be too dramatic — KPMG is slinking away, and giving up its prime federal services real estate to, likely, another Big 4 firm.

Times change, tastes change, politics change. KPMG has its eyes on other prizes, like Tether. Maybe the conflicts with taking on the audit of the purported dollar replacement are now just too big.

But some additional history is also important to keep in mind:

5. Speaking of KPMG, I caught the firm talking its book. The FT Alphaville Substack newsletter edition had this blurb on April 24:

Reid used the chart to tee up a recent report by his colleague Adrian Cox, which explores the Gulf’s emergence as something of an AI hotspot. Cox argues that despite disruption from the ongoing US/Israeli war against Iran, the region’s long-term prospects are bright because disruption will make people want more AI.

The chart uses data from ‘Trust, attitudes and use of artificial intelligence: A global study 2025’, produced by the University of Melbourne and KPMG, the (primarily) advisory business.

How seriously should we take its findings? The research is based on 48,340 survey responses from across 47 countries, gathered between November 2024 and January 2025 — producing a sample of 1,001 to 1,098 respondents per country. The survey used “representative panels” that reflected each country’s gender, age and regional population distributions.

How seriously should we take these findings? Not very, in my opinion. Why?

That kind of tainted “scholarship” is embarrassing.

6. There were a lot of mentions this week of the fines Hong Kong regulators imposed on PwC for the spectacular failure of Evergrande in China. The story continues to thrive in the US despite the fact that Evergrande was not listed here. The Financial Times puts its US and UK Accountancy reporters on the job:

PwC fined $166mn by Hong Kong regulators over Evergrande audit Big Four firm also faces six-month ban on new clients related to its work on failed property developer’s books Ellesheva Kissin in London and Stephen Foley in New York APR 23 2026

Two of Hong Kong’s financial regulators have fined PwC a combined HK$1.3bn ($166mn) and imposed a six-month ban on taking new audit clients following an investigation into the accounting firm’s work for the collapsed property developer Evergrande.

The Securities and Futures Commission said on Thursday that the Big Four firm committed “serious breaches of auditors’ professional duties” during its audits of Evergrande in 2019 and 2020. The SFC said PwC’s Hong Kong business would set aside HK$1bn to compensate Evergrande’s independent minority shareholders, after concluding a four-year investigation that began shortly after Evergrande’s 2021 debt default sent shockwaves through the Chinese property sector.

Hong Kong’s accounting regulator said in a separate announcement that it had banned PwC from working on audits for new public interest clients for six months, calling the accounting failures “egregious”. It marks the first such ban imposed by the regulator.

The Accounting and Financial Reporting Council also fined two of PwC’s former partners a total of HK$10mn for misconduct in the audits, in addition to its HK$300mn fine on the firm…

Beijing regulators ruled in 2024 that PwC’s mainland business “concealed or even condoned” fraud at Evergrande in the years leading up to its collapse, levied a Rmb441mn fine and froze the firm out of auditing state-owned companies. The Hong Kong action adds to the financial fallout for the Big Four firm.

Which PwC partners were fined? The story does not say but the regulator does.

“…two of its former partners and registered responsible persons, Mr Cheung Siu Cheong (Cheung) and Mr Chow Sai Keung (Chow)²”

Not Raymund Chao, who used to lead the entire PwC Asia Pacific practice. He is now running something called Wonder Capital Group. There are reports that some PwC partners have been taken away by authorities and are under criminal investigation. China expert Bill Bishop (@niubi) on X:

PwC’s Evergrande crisis deepens with record Hong Kong settlement and criminal probes 04 May 2026

During PwC’s more than decade-long relationship with Evergrande, its China operations were led by Raymund Chao, former Asia-Pacific and China chairman. An anonymous internal letter in April 2024 accused him of prioritising high partner incomes — allegedly earning HK$50 million a year himself — while allowing risk management to fail. Chao stepped down in July 2024 and was succeeded by Chinese mainland partner Daniel Li. Shortly after, Hemione Hudson, a senior partner from the UK, was appointed to lead the China business and manage the deepening crisis. People familiar with the matter said Chao has already retrieved his partnership capital and is now abroad.

A lawsuit by China Evergrande’s liquidators against PricewaterhouseCoopers International will have its first public court hearing in May.

7. More signs of PwC globally grasping at straws.

PwC planning global overhaul of consulting business Shake-up spurred on by rise of AI and threat of major upheaval across the industry Stephen Foley in New York and Laith Al-Khalaf and Ellesheva Kissin in London Apr 14 2026

Mohamed Kande, the first consultant to be appointed PwC’s global chair, has been pushing for tighter integration but has pulled back from the most radical options for fear of creating friction in the network, according to some of the people familiar with the planning. The reorganisation is still politically fraught, the people said. While global bosses at Big Four firms have long pushed for common standards across all countries, national member firms have historically been resistant to giving up control of parts of their business.

The objective is to standardise training and demand planning, and to direct client projects to the parts of the firm’s international operations with appropriate capabilities and highest quality, said one of the people.

Kande was an interesting choice for Global Chair, after Tim Ryan stepped down to move to Citibank, for many other reasons. In particular, he was acquired with his company, barely 15 years ago. Very unusual for an outsider, and a consultant, to leap over all of those partners in line for the brass ring since coming on as interns during college. Is it possible they just don’t want the leadership jobs in the Big 4 when instead, as relatively young men, they can earn the big bucks for another 20-30 years?

See Sam Di Piazza. Why wait?

Speaking of Sam… We haven’t heard from him since January. He’s been busy working, despite a “getting up there in age” 75.

More PwC negative news:

PwC will drop cover for weight-loss drugs from employee health plans Big Four accountancy balks at high cost of medication it says has become ‘cultural phenomenon’ Ellesheva Kissin in London and Stephen Foley and Patrick Temple-West in New York May 1 2026

PwC joins a growing list of businesses with curbs on access to the expensive medicines as they become increasingly popular. Its health insurance will no longer cover GLP-1s for weight loss, weight management and associated conditions, it said. “They basically want us to wait to become diabetic,” one employee told the FT, saying it amounted to discrimination against those struggling with health problems owing to weight, which can be exacerbated by their work. “We work so hard and do such long hours sitting in front of a computer, it is not conducive to an active lifestyle,” the person said. “I don’t think the obesity diagnosis is being treated respectfully.”

They just want more attrition by any means necessary, I guess.

8. I’ve warned that much of what the Big 4 are focused on now, are counting on to bring in more billions, are making sure no one stops them from cornering the market on, is happening behind closed doors, in private markets.

I wrote about FTX, and how two regional firms, Armanino and Prager Metis were the patsies who signed the U.S. and Bermuda exchange audits, but three of the Big 4 were hovering around, in the background, charging fees for tax, IPO controls prep and systems design and implementation work.

We’ve talked about three big private companies prepping for IPOs, where journalists have to work to scoop the info about who is doing the audit, despite everyone involved in the companies and their potential transactions knowing who that is.

OpenAI is Deloitte, SpaceX is almost certainly PwC just like Tesla and the former Twitter. We have not seen reports on Anthropic, yet.

BTW: Prof. Ann Lipton says SpaceX is already violating securities laws! More on that in my next newsletter.

I’ve written a lot about First Brands and Tricolor, private firms that went bankrupt amid criminal allegations of fraud.

Although the auditors of each are next tier firms, BDO and Grant Thornton, respectively, the Big 4 firms hover around picking up work in the background. That is especially true about Deloitte, who started the “quality of earnings” work for First Brands that was essentially second-guessing BDO’s audits, and loves to work on securitization due diligence attestation engagements.

We also saw how Deloitte was more interested in working with Silver Lake on all of its private private equity transactions that it resigned three audits related to its WWE client to take on private transactions work.

On April 24, Bloomberg’s David Voreacos, Sabrina Willmer, and Jonathan Randles wrote, “Hedge Fund Collapse Sparks Global Hunt for Almost $600 Million” (gift link).

The subhed alludes to mega missing money at this Big 4 serviced private hedge fund.

It’s not clear who has the missing cash, but it’s definitely not investors in Mars FX

David Choi’s hedge fund seemed too good to pass up, with Mars FX US LP posting annual gains that averaged 19% and zero monthly losses. In the end, it was too good to be true.

Choi’s fund is now bankrupt, almost $600 million has gone missing, and a global hunt is underway for the money and whom to blame. A criminal fraud inquiry has been opened in the US, and lawsuits are pending in at least three nations, with some alleging forgery and money laundering. The blue-chip auditing firm of Deloitte is being sued after signing off on the fund’s financial statements before its collapse in 2025.

I saw the story first on LinkedIn via the inimitable Prof. Erik Lie:

Cohen New York, Inc., derivatively on behalf of Mars FX US LP, and on behalf of similarly situated investors, Plaintiff, v. Novus Capital Partners Llc, David Choi, Ashish Patel, Patrick Hofmann, Jae Choi, and Deloitte & Touche LLP, Defendants, and MARS FX US LP, Nominal Defendant, Case No. 2026-0312-NAC, filed a verified class action, derivative, and direct amended complaint in the Court of Chancery in Delaware on April 20. Bloomberg Reporter David Voreacos got in touch to make sure I saw it and all the filings because he knows I would be very interested in a fraud missed by Big 4 firm Deloitte, even if it is at a hedge fund that is not publicly listed.

What happened to Mars FX and to the money?

Let me quote the version from the recent filing (although the Bloomberg article does a great job walking through the timeline) and highlight in bold the portions that I find especially interesting:

2. This case is about a general partner that, with its auditor’s help, funneled hundreds of millions of dollars of investor capital through an entity it knew was unregulated and unlicensed—without safeguards, without segregating accounts, and without properly informing investors of the risks of such an investment. For four years, the General Partner funneled every investor dollar committed to MARS through a single company—Tech RealFX Ltd (“TRFX”). TRFX was not regulated by any governmental authority. It held all downstream brokerage accounts in its own name rather than the client’s. And it did not segregate investor assets from its own.

3. The General Partner never independently verified TRFX’s regulatory status. It never ensured that fund assets were held in the fund’s name. It never confirmed that TRFX’s self-reported balances reflected actual trading. It appointed an entity controlled by TRFX’s sole director as the Master Fund’s agent and attorney. And it collected approximately $22 million in performance allocations based on returns that may have been entirely fictitious.

4. The General Partner and TRFX built a simple (and fraudulent) structure. Investor capital flowed from MARS to the Master Fund, from the Master Fund to TRFX, and from TRFX to two downstream regulated brokers—Equiti Capital UK Limited and GO Markets Pty Ltd—where the funds were held as collateral for foreign exchange trading.

But every account at those brokers was in TRFX’s name, not the Master Fund’s. The Master Fund had no direct access to or control over the accounts. The Master Fund had no direct access to the downstream accounts. And TRFX—an unregulated entity whose sole director was also the sole director and sole shareholder of a related company appointed as the Master Fund’s agent and attorney—stood between the investors and their capital at every point in the chain.

5. The General Partner concealed these risks from investors. When Cohen first invested in MARS on May 1, 2022, the operative offering documents represented that TRFX was regulated by the Financial Services Commission of the British Virgin Islands, that fund accounts were held “in accounts maintained in the name of the Master Fund,” and that “[t]he Partnership’s assets never leave the custody of its brokers and trading counterparties.” Every one of those representations was false.

Then, in February 2024, the General Partner rewrote the offering documents—not to warn investors, but to insulate itself. It struck each of the prior representations and replaced them with their opposite: that TRFX “is not regulated or subject to regular inspection by any governmental regulator,” that accounts were “held in the name of the Technology Partner or its affiliates,” that TRFX “is not required to segregate the Master Fund’s trading positions from its own assets,” and that the General Partner “has not independently investigated the Technology Partner’s compliance with any local laws.”

The General Partner never properly informed Cohen or, on information and belief, any other existing investor of these changes. Cohen continued to invest, making another investment of $513,916.63 on July 1, 2024, in reliance on representations the General Partner had already surreptitiously repudiated.

6. Deloitte knowingly participated in the MARS Defendants’ scheme. As auditor for the Master Fund and MARS from inception through fiscal year 2023, Deloitte issued four consecutive years of unqualified audit opinions while the fund’s assets grew from $19 million to $384 million. Deloitte classified virtually all assets as “Cash with broker” held by TRFX. Deloitte itself quietly changed its description of TRFX from “a British Virgin Islands regulated entity” to merely “a British Virgin Islands entity,” dropping the word “regulated” without explanation, correction, or notice to investors.

Deloitte knew the balance confirmation process ran through TRFX—an unregulated entity that controlled the accounts in its own name. And when the General Partner executed the revised limited partnership agreement and private placement memo in February 2024 and circulated redlines acknowledging all of these deficiencies, Deloitte delivered its 2023 audit three months later and reported that there were no subsequent events requiring disclosure. Without Deloitte’s imprimatur, the General Partner could not have continued to raise capital. By affirmatively covering the General Partner’s tracks, Deloitte perpetuated the fiction.

7. But the scope of the failure is even worse than the General Partner has acknowledged. In November 2025, TRFX filed a Defence in related BVI proceedings asserting that its trading platform ceased operating in October 2022. If true, that means the balances shown to investors and audited by Deloitte for two full years after that date—growing from approximately $248 million to $384 million—were fictitious.

The performance returns reported to Cohen and other investors were fictitious. And the approximately $22 million in performance allocations the General Partner earned on those returns were based on numbers that reflected no actual trading. TRFX now denies holding any money for the Funds and claims the Master Fund “would be entitled to nothing.”

8. The result was both predictable and catastrophic. When the Master Fund requested redemption of approximately $597 million in November 2024, TRFX refused. The money was in TRFX’s accounts. TRFX was unregulated. There were no segregation requirements. The downstream brokers refused to provide balance confirmations, citing confidentiality obligations to TRFX—because the accounts were in TRFX’s name. Approximately $597 million in investor capital has vanished.

It is pretty bold to put “aided and abetted” allegations in for the auditor. I am very interested in this case and see parallels with Madoff’s fraud. But there are also eerie similarities to another old case I’ve spent a lot of time on, MF Global.

The article I link to, from my work at Forbes, is more than ten years old, but damn it’s evergreen.

Here’s what reminded me of the Mars case:

The LinkedIn profile says McGowan’s first job as a PwC auditor, after graduating from the private University of Scranton, was at PwC client Drexel Burnham Lambert from 1980 to 1985. Drexel settled criminal and SEC cases in 1989 related to insider trading by Dennis Levine and Michael Milken. The firm managed to survive into 1990 by transferring “excess” capital from its regulated broker-dealer subsidiary into the Drexel holding company until ordered to stop by the SEC. (Sound familiar?) Drexel filed for bankruptcy in 1990, after several deals failed and the junk bond market crashed.

McGowan was, according to the LinkedIn profile, a partner on PwC’s Barings audit from 1990 to 1993. You remember Barings and the “rogue” trader Nick Leeson? His fraud was discovered in February of 1995. Leeson’s losses came to more than $1 billion, more than the bank could cover and it collapsed that March, bought by ING for one British pound. PwC paid an undisclosed amount to settle litigation regarding its audit. An investigation by Britain’s Chancellor of the Exchequer said, “Barings’ collapse was due to the unauthorised and ultimately catastrophic activities of, it appears, one individual (Leeson) that went undetected as a consequence of a failure of management and other internal controls of the most basic kind”.

An independent review of Bernie Madoff Ponzi scheme litigation will show that PwC also audited the Kingate Global Funds, the Fairfield Greenwich Group of funds - the largest Madoff feeder fund family - and several other funds that invested in Madoff.

McGowan’s possible LinkedIn profile does not list a role in any of these audits, but she did play a big part in missing Madoff’s fraud, according to every lawsuit filed on behalf of investors in the PwC audited feeder funds and by the Madoff Trustee. The consolidated class action complaint, In Re Santander-Optimal Securities Litigation, states:

Starting at least as early as 2004, PwC Bermuda and PwC U.S. conducted procedures on Madoff which were then communicated in written form to the various PwC member firms that actually issued the audit opinions for the Madoff feeder funds, such as PwC Ireland for Optimal SUS. These procedures on Madoff were conducted at least twice, in December 2004 and again in December 2006.

…PwC U.S. and PwC Bermuda visited BMIS, in New York City, on at least two separate occasions and conducted cursory audit procedures of Optimal SUS’s assets being managed by BMIS…the attendees to the meeting with Madoff are disclosed as, Linda McGowan (“McGowan”) and Scott-Watson Brown (“Brown”). McGowan is a partner at PwC U.S., and based in PwC’s office in New York City at 300 Madison Avenue – about ten blocks from Madoff’s offices in the Lipstick Building. Brown was a partner at PwC Bermuda, based in Hamilton, Bermuda.

In December 2004, PwC partners McGowan (PwC U.S.) and Brown (PwC Bermuda) visited Madoff at BMIS’s offices in New York City. The purpose of the visit was to review the investment procedures employed by Madoff concerning BMIS’s management of Optimal SUS’s assets.

Indeed, the Report (“PwC Madoff Report,” Ex. 6) generated from that meeting expressly states that the review was being conducted on behalf of Optimal Multiadvisors, which includes Optimal SUS. Although the report, printed on generic PwC letterhead, purports to “document” BMIS’s management “procedures,” the conclusions contained therein are based exclusively on PwC’s interview with Madoff himself and his own, self-serving representations.

Neither McGowan nor Brown made any attempt to verify Madoff’s statements, and instead simply transcribed his unsubstantiated assertions into the Report and turned it over to PwC Ireland. PwC Ireland then, notwithstanding the cursory nature of the review, relied almost exclusively on PwC U.S. and PwC Bermuda’s December 2004 visit to BMIS, and the resulting Report, to sign-off on its 2004, purportedly comprehensive, audit of Optimal SUS.

McGowan and Brown had the chance but, apparently, never caught the Wizard of Lies in his fibs. (Diana Henriques’ book is highly recommended.)

While McGowan was running back and forth to Madoff’s offices to check on things for all the feeder funds audited by PwC, she was also responsible, according to the LinkedIn profile, for the broker-dealer audits at other PwC clients such as Goldman Sachs, Instinet, and Knight Capital.

The latest is that, after all this time, maybe we’ll see a PCAOB permanent program for inspection of broker-dealer auditors instead of the interim one we’ve had for nearly 15 years. Will it be at the PCAOB or at the SEC, which has never been focused or staffed sufficiently to meet its other inspection obligations? And there have been lots of complaints from the audit firms and their clients about these inspections, mostly because the PCAOB keeps finding lots of issues especially auditor independence violations!

Via Soyoung Ho at Reuters Checkpoint News:

The Public Company Accounting Oversight Board (PCAOB) might finally move to craft a permanent program to inspect auditors of broker-dealers.

The PCAOB gained the authority to inspect auditors of broker-dealers in Section 982 of the Dodd-Frank Act in 2010, and the board has been inspecting them under a temporary program described in 2011 in Release No. 2011-001, Temporary Rule for an Interim Inspection Program for the Audits of Brokers and Dealers.

Since then, the board has been intermittently working on a rule proposal for a permanent program but has continued to experience delays. It is unclear exactly what the hold-up has been during previous leaderships, though there have been difficulties in figuring out the best way to shape the program.

Now, Securities and Exchange Commission (SEC) Chief Accountant Kurt Hohl wants the PCAOB to act. The SEC has oversight authority over the audit regulatory board.

“One of the things that we’ve asked the PCAOB to do is finalize their broker-dealer inspection program, so it’s no longer an interim but a finalized program,” Hohl said at the SEC Speaks 2026 conference hosted by the Practising Law Institute on March 20 in Washington.

Hohl did not provide details and did not take any questions from reporters after his panel discussion.

© Francine McKenna, The Digging Company LLC, 2026

Deep Quarry

Using data to uncover trends in disclosure and reporting.

By Olga Usvyatsky

On March 19, 2026, the U.S. Department of Justice indicted three persons — high-level employees and intermediaries connected to Super Micro Computer — for conspiring to “unlawfully divert cutting edge U.S. artificial intelligence technology to China.”

The DOJ indictment related to alleged export-control violations by certain Super Micro Computer employees and intermediaries notably did not charge Super Micro (NASDAQ: SMCI) the company itself. Super Micro is left in the position of a non-indicted issuer facing potential control and oversight questions rather than direct criminal liability.

Deep Quarry

Super Micro: What can we learn from the DOJ indictment?

There’s an old meme about “Belarusian shrimp” that dates back to 2014, when Russia imposed countersanctions banning many Western food imports. Suddenly, Belarus — a landlocked country — appeared in trade data as a growing exporter of seafood (including shrimp) to Russia. The explanation wasn’t aquaculture innovation, but re-export: goods from Europe were routed through Belarus, relabeled, and shipped onward, technically complying with paperwork while subverting the spirit of the restrictions. The phrase stuck as shorthand for trade flows that exist on paper but don’t make economic sense when you trace the product’s underlying path. (Belarusian officials…

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4 months ago · 8 likes · Olga Usvyatsky

Despite its apparent reprieve from a criminal indictment, the company moved quickly to reinforce its compliance posture. SMCI appointed DeAnna Luna — who joined Super Micro as Vice President of Global Trade & Sanctions Compliance in October 2024 — as acting Chief Compliance Officer. This strengthening of its trade compliance and internal governance framework signals a shift toward more formalized oversight of international sales channels:

“The Company also announced today that it has appointed DeAnna Luna as acting Chief Compliance Officer, effective immediately. Ms. Luna brings to this role more than two decades of experience in global trade compliance, governance, highly regulated markets, and legal risk management. Prior to joining Supermicro in 2024 as Vice President of Global Trade & Sanctions Compliance, she served as Director Global Export Licensing & Classification at Intel Corporation and as Senior Director of Global Trade Compliance at Teledyne Technologies, among other roles. Ms. Luna holds a B.A. in International Business from San Diego State University.”

Super Micro also posted multiple import-export compliance-related job openings on LinkedIn:

Source: LinkedIn.

Strengthening the compliance team to signal active remediation efforts is an expected move for a company whose co-founder was among those indicted by the DOJ, especially given an additional ongoing SEC investigation.

In contrast, the Company’s decision to engage a forensic accounting firm — announced via April 7, 2026, press release — points to a more consequential development: a full-scale internal investigation that extends beyond a routine compliance buildout into a targeted review of transactions, controls, and financial reporting given the indictment of the individuals associated with Super Micro:

“SAN JOSE, Calif., April 7, 2026 – Super Micro Computer, Inc. (NASDAQ: SMCI) (“Supermicro” or the “Company”) today confirmed that an independent investigation is underway regarding the March 2026 indictment of three individuals who were associated with the Company at that time…

The investigation is being led by two independent members of the Company’s Board, Scott Angel, Lead Independent Director, and Tally Liu, Chair of the Board’s Audit Committee, who will report their findings and conclusions to the other four independent members of the Board….

The Board’s independent directors have retained Munger, Tolles & Olson LLP (”MTO”), a top-ranked law firm with five decades of experience leading independent investigations. Additionally, MTO has retained AlixPartners as an independent consultant, bringing deep expertise in forensic accounting and audit committee investigations. MTO, AlixPartners and the independent directors will work in close coordination with BDO USA, P.C., the Company’s auditor. MTO and AlixPartners will report their findings directly to Messrs. Angel and Liu.”

Notably, this is the second internal investigation announced by Super Micro in less than two years and the Company has engaged a different law firm and forensic accounting firm than for the first investigation. In August 2024, Super Micro initiated an internal investigation after its auditor at the time, EY, raised concerns about the integrity of management and subsequently resigned without issuing any opinions, prompting the board to form a Special Committee of independent directors. Supported by external counsel and forensic advisors, the review focused on governance, transparency, and control processes, including communications with the auditor, internal control over financial reporting, revenue recognition practices, rehiring of former employees, export control compliance, and related-party transactions.

The company disclosed in December 2024 that the investigation did not find evidence of misconduct by senior management or the board but that it did identify certain documentation deficiencies:

“On November 5, 2024, the Company announced that the Special Committee’s investigation preliminarily found that the Audit Committee had acted independently and that there was no evidence of fraud or misconduct on the part of management or the Board of Directors…

…The Special Committee found certain instances where the documentation, tracking, training, and instructions around appropriate guardrails were inconsistent or vague.”

Super Micro also determined at that time that its compliance program was reasonably designed to comply with export control regulations, no violations of export controls had occurred, and that nobody at the Company was aware of any attempts to circumvent export controls (emphasis added):

“Export control matters

• The Special Committee also reviewed 11 specific export transactions noted by EY. The Review focused on whether, at the time of shipment, transactions complied with relevant U.S. export laws and regulations. The Special Committee also reviewed certain allegations of export control violations contained in a short-seller report released on August 27, 2024 (the “Short Seller Report”).

• The Special Committee relied in part on work conducted as part of the Company’s regular compliance processes by outside counsel and on a separate export control review recently conducted by other outside counsel. In addition, the Special Committee investigated sales data from these transactions and conducted a targeted email review and collection of documents from 34 individuals.

• The Special Committee did not see any evidence suggesting that anyone at the Company tried to circumvent export control regulations or restrictions, or that anyone at the Company was aware that any of its products might be diverted to a prohibited end user or location. The Special Committee also did not identify products that were sold to Russian customers or shipped to Russia in violation of export controls or sanctions laws that were in place when products were shipped.

• Based on its Review, the Special Committee concluded it appears the Company has implemented a reasonable program for compliance with applicable export control regulations.”

Note that the transactions noted by EY raised alerts about illegal shipments to Russia, while the DOJ enforcement action alleges violations related to illegal re-export to China.

In contrast to the 2024 review, Super Micro does not argue that the alleged export violations of redirecting AI servers to China did not occur. Instead, the company emphasized that it was not named as a defendant, was not accused of wrongdoing, and that the alleged conduct was contrary to company policies and controls:

“Supermicro is not named as a defendant in the indictment and is not accused of any wrongdoing. The Company took swift action, and the three individuals no longer have any relationship with Supermicro.”

In substance, Super Micro is arguing that it was a victim of rogue individuals who circumvented a compliance program the company believed was robust. Whether that position holds will, arguably, depend on the findings of the 2026 investigation, which is specifically focused on the circumstances of the indictment and the global trade compliance program. That review may either support the company’s “we did not know” defense — or identify who else knew, what red flags were missed, and whether the prior conclusion that the export compliance program was reasonably designed was too narrow, incomplete, or otherwise flawed.

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“Audit firms harnessing artificial intelligence promise faster, more automated audits – but not necessarily lower costs. For boards, the challenge is to separate genuine innovation from margin expansion. This session will outline how directors should evaluate audit pricing in an AI-enabled environment, what evidence to request from auditors and how to recalibrate audit committee engagement to safeguard both value and quality.”

That’s the pitch for a webcast with me and Sophia Velastegui hosted by Anna Bianca Roach of FT Agenda on April 22, 11 am ET.

Sign up here for free access to the webcast.

A selection of presentations from the Cambridge Disinformation Summit

There were a number of great presentations at the Cambridge Disinformation Summit week before last. I’ll highlight a few that were particularly interesting to me. Huge kudos and thanks again to the team at Cambridge Judge led by Alan Jagolinzer for an amazing conference and few days in sunny Cambridge, once again .

My dear friend, fellow veteran of the financial crisis wars, Professor Anat Admati of Stanford was a first-day keynoter with, “Disinformation and Finance: Systemic Financial Industry Risks.”

Here are a few of Professor Admati’s slides to whet your appetite:

Admati Disinformation Summit 2026

10.3MB ∙ PDF file

Download

Download

Here’s professor Admati’s presentation:

For more from Anat and I at Princeton:

University of Virginia post-doctoral researcher, Max Brichta, discussed his paper: “Parasitic Capital: Disordered Information and Deception in Decentralized Finance (DeFi) Ecosystems.”

Here’s the video of his talk.

Prof. Gregg Briggs, of the Asian Institute of Management, did a pre-Summit lecture on Tuesday on Cognitive Warfare.

He noted, among other things, that a core objective of cognitive warfare is cognitive paralysis. That’s where the perpetrator “floods the zone with shit,” as some have said. This technique affords considerable relative power to a malign actor.

Here’s a link to his paper. For journalists I found these two slides particularly interesting. They comes in the lecture at the 42:18 minute mark:

Here’s the video:

An update on Erie Indemnity

Joe DiStefano quotes Ohio State’s Brian Monsen and me in his story on April 18 (gift link), one that has been a while in the making given the politics involved:

‘The strangest aspect’

Francine McKenna, a Philadelphia-based CPA and university instructor who analyzes auditing practices, noted that Erie’s split into separate fee-collection and underwriting companies was unusual and that Erie Exchange’s 25% yearly payout to the publicly traded company is uniquely high.

But, she said, state regulators have endorsed the business model.

In 2009, Steven Johnson, Pennsylvania insurance department’s head regulator, urged the Financial Accounting Standards Board (FASB), which sets guidelines for U.S. financial companies, to accept Erie’s two-company approach. At the time, the board was pressing more companies to consolidate their financial reporting into a single set of books.

“This is the strangest aspect of the Erie story. I have never seen a regulator write a comment letter [to FASB] on behalf of, or even with direct reference to, an entity it regulates,” said Brian Monsen, a former FASB technical assistant who teaches financial reporting at Ohio State University.

In 2015, Johnson quit the insurance department, and went to work for corporate law firm Stradley Ronon Stevens & Young, whose clients include Erie.

Stradley’s then-chairman Bill Sasso served alongside Hagen on Shapiro’s transition team, recommending candidates for state jobs.

Choosing auditors

Some news about something I wrote about in my last newsletter, voting for the auditor at the annual general meeting. At least in Hong Kong they realize the shenanigans that are going on and want to bring some transparency, and shareholder involvement and awareness, to the process. Via Bloomberg (gift link and hat tip Stephen Caswell, thanks for the heads-up!):

Hong Kong Exchange Tightens Rules to Avoid Auditor Shopping By Kiuyan Wong April 19, 2026

Hong Kong listed companies must now obtain shareholder approval to change auditors, part of a regulatory push to bolster corporate governance and transparency in the $7.5 trillion market.

In updated guidance issued late Friday, Hong Kong Exchanges and Clearing Ltd. mandated that firms appoint or remove auditors only at general meetings. The bourse also required companies to disclose specific audit fees or ranges to prevent fee disputes from being used as a pretext for dismissal.

The move effectively closes a loophole that allowed boards to pressure auditors into resigning without immediate shareholder oversight. Under the new rules, any action by a company that triggers an auditor’s resignation will be treated as an active removal, necessitating a formal vote.

After the jump, something about the connection between the Bondi brother and sister legal team and a little company that couldn’t stay out of trouble, ILearningEngines, and then a discussion of Greg Abel’s first 100 days and what I think is coming next, based on the numbers.

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Then, I popped over to the Continent to visit my niece Lena Bryan in Paris as she wraps her year of teaching English at College Georges Seurat. She is seeking a project management role at an advertising agency in Chicago.

She is a keeper!

More on the conference, and some on traveling at this time and Paris observations, in a future post. There’s also a ton more news for me to catch up on and to provide commentary on regarding the firms, especially EY, and the latest from PCAOB.

I was preparing a financial analysis lecture for my Acct 204 students at Montclair State and had a revelation about Amazon. It ended up the subject of an optional discussion board for my students and they had some great insights!

Stay tuned.

A few fun updates and then the paywall.

Please support The Dig so I can keep doing what I do: bring you the latest in companies, auditors, and corporate governance commentary and insight.

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Rita Crundwell

The Chicago Tribune’s Vintage newsletter reminded me that April 17 is the 14th anniversary of the arrest in 2012 of Dixon, IL’s Rita Crundwell.

I wrote about Crundwell for Forbes Magazine at the time.

The Madoff Of Munis

By Francine McKenna,

Contributor. I cover the accounting industry and accounting issues for investors. Jun 05, 2013, 09:30am EDT Jun 07, 2013, 09:42am EDT This article is more than 10 years old.

When asked in 2011 about the city’s worsening cash crunch, Crundwell blamed lagging payments from the state, which collects and remits Dixon’s share of tax revenues. It was a display of chutzpah worthy of Bernie Madoff. In fact, the money had arrived, and she had spent it--on herself. Between 1991 and April 2012 she embezzled $53.7 million from Dixon, using the loot to acquire 400 quarter horses (the quintessential American racehorse), a ranch in Dixon and horse trailers and trucks. She traveled to equestrian competitions in a $2 million motor home and remodeled her Illinois home with an in-ground pool and a chandelier made of old revolvers and spurs, in addition to buying another home in Englewood, Fla., minks, jewels, a 1967 Corvette convertible and a bar of gold bullion valued at $1.5 million.

Local residents who saw Crundwell’s stables and spending grow--she was the American Quarter Horse Association’s top breeder-owner for eight consecutive years--naively assumed she was making money from show horses, which (as horse people know) more often generate tax writeoffs than profits. Instead, to spend more, she stole more. In the six years before an FBI agent confronted her in April 2012, she pocketed $30 million--more than half the town’s revenue.

The 60-year-old Crundwell pleaded guilty to one count of wire fraud in November and now sits in federal prison while she appeals a 19?-year sentence for what ranks as the largest municipal embezzlement in U.S. history and eighth-largest U.S. embezzlement of any kind, according to a tally kept by Christopher Marquet, a Boston-based security consultant. (Runner-up in the muni category: Harriette Walters, the real estate tax assessments manager for Washington, D.C., who, before her 2007 arrest, issued phony tax refunds to herself totaling $48 million over two decades. The biggest embezzler overall, according to Marquet, is Peregrine Financial Group founder Russell Wasendorf Sr., who pleaded guilty last year to siphoning $215.5 million from customers’ accounts over 20 years.)

If you haven’t seen Chicago’s DePaul Professor Kelly Pope film about Crundwell, “All the Queen’s Horses,” it is highly recommended and available on Amazon Prime and Netflix.

What happened to Crundwell?

Rita Crundwell’s sentence was commuted for compassionate reasons in December 2024, by President Biden before he left office. The Chicago Tribune reports:

She was sentenced in 2013 to nearly 20 years in federal prison. In April 2020, Crundwell had petitioned a federal judge for early compassionate release based on her poor health and the COVID-19 pandemic.

“I have done everything in my power to be a ‘model inmate.’ To work as hard as I can and have never complained about my conditions here or the pay we receive,” Crundwell wrote. “There is never a day that goes by, I do not regret my crime.”

She’d served about eight years behind bars before being released in 2021 to a halfway house in Downers Grove, U.S. Bureau of Prisons records show. Crundwell would have completed her sentence in October 2028.

Republican U.S. Rep. Darin LaHood, who represents Dixon, said the president showed a disregard “for our justice system and rule of law” by commuting Crundwell’s sentence.

This is a WGN report on the community’s reaction to her release. (I used the video in my Montclair State University Acct 204 for non-accounting majors to talk about internal controls.)

Stablecoins as Cash

Bloomberg’s Jorja Siemons wrote yesterday about how PayPal and Coinbase are now treating their stablecoins as cash.

It was even a question on our midterm in early March!

After the jump, my commentary about what’s happening with regard to the Consolidated Audit Trail, more than one case of journalists getting duped by the latest crop of dishonest start-ups, a weird case of competitive shareholder voting for the auditor, and KPMG’s latest push regarding its AI initiatives.

To read the rest you need to be a paid subscriber. Won’t you consider it?

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