Enforcement for thee and not for me: Auditors poised to get away with murder

The Big 4 firms are exerting pressure on regulators globally to ease up on individual professional accountability. SEC Chair Paul Atkins’ choices for the PCAOB will likely deliver on that wish.

Finally, the balance of equities and public interest favor a stay. The Government does not cite any reason termination must occur post haste.

Secretary Noem complains of strains unlawful immigrants place on our immigration-enforcement system. Her answer? Turn 352,959 lawful immigrants into unlawful immigrants overnight. She complains of strains to our economy. Her answer? Turn employed lawful immigrants who contribute billions in taxes into the legally unemployable. She complains of strains to our healthcare system. Her answer? Turn the insured into the uninsured.

This approach is many things—in the public interest is not one of them. Judge Ana C. Reyes, UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA, FRITZ EMMANUEL LESLY MIOT, et al., Plaintiffs, v. DONALD J. TRUMP, et al., Defendants.

Source: https://plandelectura.bibliotecasmedellin.gov.co/el-beso-de-la-mujer-arana-manuel-puig/

Let’s dig into the Big 4 firms’ pressure on regulators and law enforcement to relax imposition of individual professional accountability and how SEC Chair Atkins’ choices for the PCAOB deliver on that wish.

But first some breaking newsmakers that I told you would be trouble.

In 2014, I wrote for Medium.com:

Bezos’ recent individual purchase of the assets, not the shares, of the Washington Post allows him to use its prolonged losses to offset his own income — if he plays an active role in its management. Bezos was widely quoted saying he wanted to start Amazon on an American Indian reservation to avoid taxes. Amazon fought hard to avoid collecting sales taxes from its online customers until a late 2013 Supreme Court rejection of its appeal of a New York ruling on the subject forced a capitulation. In 2010 Bezos personally donated $100,000 to an anti-income tax increase initiative in his home state of Washington that succeeded.

Amazon employs two of the largest accounting firms in the world to meet its goal — maximize revenue but minimize taxes. EY has been Amazon’s independent auditor since its 1997 IPO and prior, preparing the audited opinions for the company’s IPO filing with the SEC. EY is the third-largest accounting firm ­globally, behind PricewaterhouseCoopers and Deloitte, but leads in market share for auditing technology and social media/social gaming companies. EY’s Strategic Growth Markets consulting unit helps companies develop financial systems, controls and accounting policies before they go public. EY helps companies understand tedious accounting rules to ensure legal recognition of complex revenue streams and gives its opinion as an independent auditor to the same companies.

And, so, I commented last week on BlueSky to retired NYU journalism professor Jay Rosen, author of PressThink, when he made what he knew was a futile suggestion that journalists should inflict a “[p]ressure campaign on Bezos to create an endowment with his wealth, sell the Post to a nonprofit board, and step away completely. Do one great thing and leave”.

In other news closer to our topic for today:

Four days ago legal newsletter author Chris Geidner wrote:

Much more has been written about Brad Karp’s interactions with Jeffrey Epstein (New York Times gift link):

Mr. Karp was in the news last year after Paul Weiss cut a deal with President Trump to head off a potentially crippling executive order. The firm’s settlement was criticized in the legal community and was seen as empowering Mr. Trump to go after other big law firms over their legal work for some of his political opponents.

The emails released on Friday revealed that Mr. Karp had attended two dinners at Mr. Epstein’s mansion in New York. At one of the dinners, in 2015, Mr. Karp met Mr. Allen, the movie director. After the dinner, Mr. Karp sent Mr. Epstein an email in which he thanked him for “an evening I’ll never forget.”

Later, Mr. Karp emailed Mr. Epstein asking him if could help his son get work on one of Mr. Allen’s movies.

In a statement, Paul Weiss said, “Mr. Karp attended two group dinners in New York City and had a small number of social interactions by email, all of which he regrets.”

The emails released by the government also show that Mr. Karp and Mr. Epstein discussed how to deal with a former mistress of Mr. Black’s and her demands for money.

I mean, what? Everyone wants to get their son a job with Woody Allan. I mean you’d do anything for that, right?

I wrote about Brad Karp back on Feb. 7, 2025, after he moderated a panel at the inaugural New York edition of Bruce Carton’s Securities Enforcement Forums.

What’s the end game? In what was, in my opinion, the most audacious statement made by anyone on the panel — really the most incredible utterance all day — Brad Karp explains how the revolving door makes all negotiation between prosecutors and defendants possible:

Brad Karp: So the stress involved in negotiating with all of these different regulators with different priorities and different agendas is really, really complicated.

Thank God that a lot of the prosecutors and regulatory lawyers want to go into private practice and don’t want to completely emasculate you because they’re gonna want a job at some point in the future, as, as our panel is, is proof of <laugh>. Which may be the only saving grace that we have in this miserable dynamic.

Corruption is not new. It is built into the system. They are laughing at you.

This year’s New York edition of the Securities Enforcement Forum is Thursday. I will be watching, and reporting, from home. I do not think Brad Karp is moderating any panels.

Update late on February 4: (Bloomberg, gift link.)

Karp Steps Down as Paul Weiss Chairman After Epstein Emails

By Meghan Tribe, Tatyana Monnay, Meghan Tribe, and Tatyana Monnay

February 4, 2026 at 8:34 PM EST Updated on February 4, 2026 at 9:55 PM EST

Brad Karp is stepping down from his leadership role at Paul Weiss after a trove of emails released by the Justice Department detailed the lawyer’s close connections to disgraced financier Jeffrey Epstein…

The decision marks a dramatic fall from grace for Karp. It comes less than a year after he landed a controversial deal with President Donald Trump, in which Paul Weiss agreed to provide $40 million in free legal services on shared causes in exchange for Trump rescinding an executive order against the firm.

Karp is longtime outside counsel to Citigroup—ushering it through the WorldCom and Enron collapses—and the National Football League, which he steered in long-running concussion-related litigation. His client list has included JPMorgan Chase, Morgan Stanley, Deloitte, ING, and Bear Stearns.

Karp also is an active fundraiser for the Democratic Party, who backed Kamala Harris in her White House bid and raised money for Andrew Cuomo’s run for New York City mayor.

The new batch of documents released Jan. 30 showed that Karp helped Epstein protect his plea deal on sex trafficking charges against legal attacks in the months before Epstein died in jail.

The documents also showed Karp exchanging emails on a variety of other subjects, ranging from dinner plans to helping New England Patriots owner Robert Kraft find local counsel after his arrest. He also seemed to act as a sounding board for Epstein and a go-between for certain communications with former Apollo CEO Leon Black.

And now to today’s commentary.

SEC Chair Paul Atkins promised in his statement on the announcement of new PCAOB members in the late afternoon of January 30, “that this new Board will usher in a new day at the PCAOB—one of sensible, efficient oversight of auditors.”

As I wrote on January 31:

But the fact remains: Appointing a retired Big 4 audit partner — a 40+ year veteran of EY — as Chair of the audit regulator is a slap in the face to everyone who has ever suffered through an accounting fraud, especially one EY missed, and everyone who worked so hard to establish and implement the PCAOB component of the 2002 Sarbanes-Oxley Act.

SEC’s Atkins puts PCAOB in Big 4’s corner

In her report on the appointments, Bloomberg’s Amanda Iacone tied the PCAOB appointments to the Trump Administration and SEC Chair Paul Atkins’ new lighter touch approach for the audit regulator.

The appointments tether the little-known financial regulator to the White House, which has rarely intervened in appointments to the non-profit PCAOB...

Pendulum Swing
The leadership shakeup is the third remake of the board in less than a decade. Each overhaul has led to strategy swings that have frustrated investors and auditors alike while stalling efforts to update US audit standards.

Congress created the PCAOB in 2002 to restore investor trust in corporate reporting after a series of accounting scandals toppled Enron Corp. and WorldCom Inc.—two of the largest bankruptcies in US history. As the auditor watchdog, the board has the power to investigate failures, set audit standards, and conduct routine reviews of firms’ work.

Republicans attempted to dismantle the audit board last year as part of a broader effort to downsize the federal bureaucracy but were stymied by Senate rules.

The SEC in July sought candidates to fill all five board seats after former Chair Erica Williams was forced out. Atkins warned applicants that the commission would scrutinize board members’ pay as part of the PCAOB’s annual budget approval.

That budget, approved earlier this month, slashed board compensation by roughly half to nearly $350,000 for the chair and $230,000 for the other members. The cuts exacerbate a wage gap with the Financial Standards Accounting Board, a separate body whose members earn more than $1 million each.

Fresh Priorities
The SEC has already begun to set out a new agenda for the board, calling on it to revamp its inspections process and reduce the focus on the work of front-line auditors while also relying more heavily on international audit standards.

The Journal of Accountancy noted the message from SEC Chair Paul Atkins regarding a reduced focus on the work of individual auditors and more of a focus on overall firm quality had previously been delivered loud and clear at the AICPA’s SEC and PCAOB Update Conference in Washington DC in December:

The plan for the PCAOB

Since the formation of the PCAOB in 2002 to oversee public company audits conducted by registered accounting firms, the SEC has held oversight of PCAOB operations.

Atkins was asked to share thoughts on the PCAOB going forward in the wake of a failed legislative effort earlier in the year that would have defunded the PCAOB and transferred its activities to the SEC.

“There, we have to get back to the first principles, basic issues, of auditing,” Atkins said. “I think we have to be very mindful of independence issues and to keep focus on improving audit quality. The PCAOB has a real need to not impose unclear standards or make things needlessly complicated, as I think a couple of the proposals in the past would have done.”

I wrote at the time about how Chair Atkins had essentially threatened the Big 4 not to defy the SEC in the interest of furthering their own commercial goals.

That’s despite Atkins being a PwC alum who has lobbied and advocated for the industry his whole professional career.

The Financial Times’ Stephen Foley wrote back in December how the SEC’s new Chief Accountant, a retired Ernst & Young partner, had explained the details of how Atkins’ mandate was to be implemented:

Accounting groups expect fewer audit inspections as part of SEC overhaul Firms argue US regulators have become too focused on finding minor infractions Stephen Foley in New York Dec 28 2025

Kurt Hohl, SEC chief accountant, told an industry conference this month that reform of the inspection process was “overdue”, since the standards governing audit firms’ quality control systems had evolved. International regulators have created detailed new rules governing how accounting firms should manage their audit businesses, which include oversight and quality control measures.

The PCAOB last year also approved new rules on how firms operating in the US should monitor audit quality, though their implementation has been delayed and could be revised.

Focusing inspections on quality control systems rather than individual audits would “shift accountability to the leadership of the firm and their systems and processes, and less on individual engagement teams”, Hohl said. “There’s a lot of stress in the environment for teams that get inspected.”

The policy shift should lead to fewer individual audits being selected for assessment in the case of most firms, McGowan said. “If audit quality is higher today than it was 20 years ago, then maybe there’s fewer individual engagements that need to be selected,” he said.

Press releases for enforcement actions are now a rare occurrence at the SEC, as noted in this footnote to law firm Paul, Weiss’ wrap-up of FY 2025 statistics.

[19] It is possible that the SEC will not announce enforcement results for FY 2025. The SEC recently stopped issuing press releases for enforcement actions. Instead, enforcement actions have generally been publicized through a litigation release that simply summarizes the complaint or settlement.

So, despite a couple of recent splashy press releases such as the one regarding ADM — of great interest because rife with accounting fraud — we continue to see the almost non-existent appetite to go after the auditors even when bad things, such as intentional accounting fraud, can be proven.

I mean, have you heard anything about any SEC or PCAOB investigation of EY, ADM auditor since 1930?

(For that matter have we seen any movement by the SEC against auditor BDO for First Brands or Grant Thornton for Tricolor, two recent spectacular bankruptcies and now criminal cases?)

CFO Dive’s Maura Webber Sadovi quotes me extensively on what we can glean from the ADM activity, but you will see how I am still hedging.

SEC showed teeth by charging accounting fraud. Disclosure and accounting fraud charges are distinct from one another, with accounting fraud carrying more weight by asserting GAAP was violated. Meanwhile, disclosure fraud is something of a lesser charge, because it asserts simply that the mistake made was a company or executives failing to alert shareholders about what happened, according to McKenna. By charging they violated Exchange Act Section 10(b) and Rule 10b-5, she said that “they make it clear that it’s not appropriate what happened,” she said.

The case’s survival into the Trump administration speaks volumes. The issue goes back to actions that occurred in 2021 and 2022, and could have been dropped by the more business-friendly Trump administration’s SEC. The fact that the SEC took the enforcement action speaks to the gravity of the case, she said. “This is something that was considered serious across both administrations,” she said.

Cooperation matters. Since Trump was re-elected, the SEC has signaled that they would value cooperation by companies under their watch. The $40 million fine is relatively modest compared to some previous enforcement penalties, she said, noting that the level could be a reward for ADM’s cooperation, which the SEC noted in its release. Cooperation “counts a lot in particular in this administration,” McKenna said. “They’re trying to send a message to other companies that even if the facts look bad, you do the right thing at the company and we’ll be easier.”

SEC veterans in white-collar defense practice have tried to brush off the slowdown in cases at the SEC, blaming the administration transition, the shutdown, and the DOGE-driven loss of staff. But the now numbers are in and they don’t lie.

Here’s another good writeup about the ADM case, although law firm Weil Gotshal does not name the company or executives in order to get around any potential conflicts in the interest of commenting on a juicy case. It also highlights how this case highlights the SEC’s stated emphasis on measuring materiality quantitatively and not qualitatively, regardless of long-standing SEC guidance called SAB 99:

◼ Focus on Quantitative Materiality. Current Commissioners have emphasized a desire for the SEC to focus on materiality from a quantitative perspective, rather than a qualitative one [fm: emphasis added]. In recent remarks, Commissioner Uyeda indicated that the SEC “should strive to adopt standards . . . focused on financial materiality.”⁵ The Order here reflects that preference, placing great emphasis on the percentages by which the Company missed its growth targets, or overstated the segment’s performance.

Nonetheless, it is safe to say that SEC enforcement in general, and in particular against audit firms and auditors, has effectively disappeared.

On December 31, the WSJ reported on diminished white collar enforcement at the Department of Justice and the follow-on effects at the SEC (gift link):

Trump Administration Upends Prosecution of White-Collar Crime Justice Department has shifted away from several areas of enforcement while Trump’s pardons have undone prominent convictions By Dave Michaels, Sadie Gurman and Aruna Viswanatha

Clemency granted to other prominent defendants, including Nikola founder Trevor Milton, Ozy Media co-founder Carlos Watson and investor Devon Archer have contributed to a feeling among prosecutors that white-collar cases are dicey work.

The president’s actions had collateral consequences for investors who lost money due to alleged frauds. Milton and Watson avoided paying tens of millions of dollars in restitution after jurors found they deceived investors.

Downstream effects at the SEC

The SEC then dropped its civil fraud lawsuits against Milton, Watson and other defendants who received clemency from Trump. Those lawsuits could have recouped funds for investors if the commission had won at trial.

The SEC’s lawyers dismissed the cases because they didn’t want to be seen as contradicting Trump’s view of justice, according to attorneys involved in the negotiations.

The commission is typically the most active white-collar enforcer in the federal government. But its ranks have been significantly depleted by attrition, and its new leadership is less interested in bringing high-dollar enforcement actions against big public companies.

The SEC under the Trump administration brought four enforcement actions in nine months against public companies, according to data from Cornerstone Research. The agency brought 52 enforcement actions against public companies during the prior three months, when it was under the Biden administration.

SEC Chairman Paul Atkins said in October that regulators should be measured in how they use their enforcement power. “If we reward the staff only for bringing enforcement actions, then we have discouraged the staff from determining not to recommend an enforcement action,” he said.

John Reed Stark, the former Chief of the SEC Office of Internet Enforcement wrote on LinkedIn on January 11:

Per two recent reports, the Enforcement Division of the U.S. Securities and Exchange Commission isn’t just pulling back -- it’s vanishing -- quietly adopting a new ethos of absence, silence and regulatory invisibility.

Meanwhile, in nearly five months since Judge Margaret Ryan became SEC Enforcement Director, Judge Ryan’s only public statement was a perfunctory three-sentence acknowledgment of a jury verdict in a case she didn’t bring. No agenda-setting speeches, no interviews, no podcasts, and no public messaging campaign laying out enforcement priorities.

In short, the most powerful securities regulator in the world has gone radio silent -- and the enforcement data explains why.

The Stats

Paul Weiss’s annual analysis of SEC enforcement reveals a dramatic collapse. In FY 2025, the SEC initiated just 4 actions against public companies under current SEC Chair Paul Atkins -- the fewest since FY 2013. Total monetary settlements plummeted 45% to $808M, the lowest since FY 2012 and less than half the $1.9B average from FY 2016–2024. The broader picture is equally grim: 313 standalone enforcement actions -- down 27% from FY2024 and 38% from FY 2023, marking the lowest level of SEC enforcement in a decade.

But here’s the crucial detail buried in the data: of the 56 enforcement actions involving public companies, 52 were initiated under former Chair Gensler. Only 4 occurred under Chair Atkins. Translation: expect FY 2026 stats to be a lot worse. The quarterly picture is even more bleak: in Q4 FY 2025, the SEC brought just two public company actions -- the lowest quarter since tracking began.

Note that the SEC’s ADM action was related to 2021-2022 activity and the investigation was initiated under former SEC Chair Gary Gensler.

John Reed Stark wrote again this week about the SEC’s inexplicable enforcement priorities, as evidenced by another old case Atkins’ SEC is pursuing. Or are they?

The SEC declared Srinivas Koneru’s case an “emergency.” The problem? By any standard of analysis, it wasn’t even close. The SEC investigated Koneru for almost 5 years. 40 document productions. Over a dozen interviews. The SEC could have filed in 2022. Or 2023. Or 2024. Or early 2025. They didn’t. Instead, the SEC waited until there was a government shutdown -- and then suddenly shouted “Emergency!”

But here’s where it gets truly absurd. When there’s a real emergency, you file for a temporary restraining order. You ask for an asset freeze. You tell the judge, “Your Honor, we need to act immediately to prevent irreparable harm.” The SEC did none of that.

The SEC’s “emergency” lawsuit? A fairly routine complaint seeking standard remedies -- permanent injunctions, disgorgement, civil penalties and an officer-and-director bar. Not a single request for immediate relief. Nothing requiring urgent court action.

Think about the priorities this reveals. Against a mammoth SEC reorg and regulatory retreat, the SEC decided this case - involving a retired executive, a now-private company, and conduct from half a decade ago where investors have apparently already been recompensed - was urgent enough to violate federal law during a government shutdown...

BTW, since filing this so-called emergency action, the SEC has filed exactly zero emergency motions.

Their sole filing? A motion for a two-week extension to respond to the complaint, citing that counsel “was out of the office at times during the holidays and New Year period” and has “an active caseload with a variety of matters.”

Read that again. They had five years to investigate. They claimed it was an emergency. And now they need more time because of. . . . vacation.

One potential alternative to federal enforcement that former SEC enforcement folks at the SEC Enforcement Forum conferences suggested back in November 2024 and again in February 2025 — there has to be something or these folks will be scrambling for work — was that states would pick up the federal slack.

I spoke to law Professor Andrew Jennings of Emory University right after the election about that.

SEC staff will take their cues from the Chair but still expect to operate independently. However, Jennings reminded me that, when they disagree strongly with leadership, SEC staff can opt out more quickly and easily than most other federal agency staff.

“SEC attorneys are well-positioned to move to private practice or industry positions, often at much higher compensation the civil service offers. And if the SEC systematically declines to take certain kinds of cases or cases against certain entities, that opens it up for state regulators and private plaintiffs to go after those cases. Often state regulators defer to the SEC and DOJ, but they might not if there’s an enforcement lag at the federal level. So, there are alternate career paths for SEC professionals and alternate enforcement options for other enforcers.” Professor Andrew Jennings

Here’s Jennings in another paper, “State Securities Enforcement’“ published in 2021 in Brigham Young University Law Review:

Although states share enforcement jurisdiction with the SEC and DOJ, their enforcement activity reflects their institutional advantages and constraints and thus largely does not overlap with that of federal authorities. Instead, states serve as the nation’s residual securities enforcers, policing local misconduct that federal authorities or private plaintiffs largely do not.4

And, we have seen some of that, in particular where states, and Congressional officials, attempt to bring actions related to the alleged abuses of immigration enforcement activity and lethal actions of federal agents such as ICE and CBP.

We also saw a rare state action for insider trading!

New York Sues Former C.E.O. of Covid Vaccine Maker Over Insider Trading

Attorney General Letitia James of New York filed an insider trading lawsuit on Thursday against a former biotech chief executive, accusing him of turning a $7.6 million profit on the sale of the company’s stock before the public learned that millions of doses of a Covid-19 vaccine were contaminated.

Filed in a New York State court, the lawsuit said that Robert G. Kramer, who was the chief executive of Emergent BioSolutions, knew of the systemic problems involving a vaccine it was helping AstraZeneca produce as part of the federal government’s Operation Warp Speed when he exercised his stock options.

The Securities Docket newsletter editor Bruce Carton noted how rare that is:

👉 Both the NYT and the WSJ covered the filing of this case. Neither publication mentioned the fact that a state AG bringing an insider trading case is pretty much unheard of?

I asked ChatGPT for a list of all other such cases because I could not think of a single one. It came up with one: an insider trading case settled in 2017 in which the Ohio AG sued Bill Ackman and his hedge fund Pershing Square Capital Management.

According to ChatGPT, at least, “there are no other widely reported examples — at least in the modern era — of a state attorney general independently filing an insider-trading lawsuit that became a prominent, public enforcement action.”

Is this correct?!? Please email me if you have any insight on this.

After the paywall, we’ll talk about the disappearance of federal enforcement action against audit firms and auditors.