SEC's Atkins threatens Big 4, more troubled KPMG-audited banks
It's a sunny but snowy Sunday and I am trying to get some useful things down on paper before I weary of the day and its travails.
“But isn’t it true that an author can write only about himself?” Milan Kundera, The Unbearable Lightness of Being
It’s Sunday and it’s snowing in Philadelphia. I’ve been here since 2022 and this is the first snow of any substance. I live on a very high floor in the Center City district and see the snow on the rooftops when it first lands but if any flurries accumulate it’s quickly gone by the time the sun comes out and it hits the street.
Bubbles and I went for a long walk to the Christmas Markets at Dilworth Park and Love Park yesterday and, although festive and sweet, it was way too crowded to have my little low to the ground Corgi-Spaniel try to make his way.
I went to bed after news of a shooting that killed two at Brown University and the culprit still at large. I woke up to news of a horrendous massacre in Sydney at a celebration of the first night of Hanukkah. Whatever good seasonal feelings I had from our walk yesterday are gone for now.
It is very difficult these days, with everything happening to my fellow humans all over the world, to focus on accounting, audit, and regulation. I admit, though, it is a distraction from feeling helpless, and a way to look to the future when some semblance of normalcy will hopefully return.
Speaking of normalcy, my hero Federal Judge Jed Rakoff of SDNY wrote something common sense about crypto, “It’s a racket!” in the New York Review of Books December 18 issue.
A good example is a case that came before me less than two years ago, SEC v. Terraform Labs PTE Ltd. Terraform, a company cofounded by the South Korean businessman Do Kwon, offered various kinds of cryptocurrency tokens to investors under names like TerraUSD and LUNA. According to Kwon, TerraUSD was a distinctive kind of stablecoin. Unlike other stablecoins, whose value is pegged to the value of the dollar, Treasuries, or other assets, TerraUSD was supposedly stabilized by a sophisticated but secret algorithm linking its value to that of another of Terraform’s coins, LUNA.
This algorithm purportedly prevented the trading price of TerraUSD from ever falling below one dollar for more than a few minutes. The algorithm promised that purchasers of LUNA could make a lot of money if the demand for TerraUSD increased, but that they would never lose the money they invested in TerraUSD.
Even in Cryptoland this proposal was initially greeted with some skepticism, but when one morning the price of TerraUSD, which had fallen to about ninety cents, immediately rebounded to nearly one dollar, investors began to believe the hype, and the price of LUNA skyrocketed to well over one hundred dollars.
This great increase was further enhanced by Terraform’s subsequent announcement that it was partnering with a South Korean mobile payment application called Chai (roughly similar to Venmo), which had been founded by Terraform’s cofounder Daniel Shin, to allow its users to process and settle their consumer transactions through cryptocurrency exchanges on the Terraform blockchain. But in May 2022 the stablecoin’s price collapsed, falling to as low as eleven cents, and investors lost more than $40 billion.
In the civil lawsuit assigned to me, the SEC alleged that Terraform’s representations were all a pack of lies and that the only reason the Terraform token price had swiftly rebounded after falling to ninety cents was that Kwon had arranged for an associate to make a huge secret investment in those tokens. Similarly, Chai never actually used the Terraform blockchain to process its customers’ transactions; it simply allowed Terraform to pretend this was happening by allowing it to create fake blockchain records that mimicked the actual payments, in conventional currency, being processed through Chai.
The SEC’s case went to trial in my court, and the jury unanimously found Terraform liable on all the counts of fraud. The SEC then settled the case with Terraform, but for a fraction of the $40 billion loss, prompted perhaps by the fact that the company had by then gone into bankruptcy.
It should be mentioned that after the case was assigned to me but before it went to trial, Terraform moved to dismiss the complaint on the grounds that investments in its tokens were not investments in securities subject to SEC jurisdiction. A “security” is, in brief, an investment that promises future profits (or protection against losses) based on the work of others.
I eventually held that most transactions in Terraform tokens were in fact disguised securities investments, but not every court addressing cryptocurrency arrangements has agreed with this, and the issue remains unresolved to this day. Kwon, however, was indicted under a more general federal fraud statute known as “wire fraud,” and he was eventually extradited, pleaded guilty, and is currently awaiting sentencing before another of my colleagues.
Do Kwon, the founder of Terra/Luna, was sentenced to 15 years (!) on December 11, in excess of prosecutor recommendations. Bruce Carton of Securities Docket had this to say:
👉 Recap:
1. Kwon pleaded guilty in exchange for federal prosecutors’ agreement to not seek a prison sentence of more than 12 years.
2. Kwon asked the court to sentence him to 5 years.
3. Judge Paul A. Engelmayer of the SDNY then sentenced Kwon to 15(!) years in prison, finding that his crimes were “a fraud of epic generational scale” and that “in the history of federal prosecutions very few cases have caused more monetary harm than you did.”
Let’s hope this one does not go the way of many other white-collar prosecutions from the last few years.
After the paywall, I’ll discuss two more KPMG-audited banks. It’s now a deeply political issue to decide which banks are propped up and how some eventually fail. About three months ago I wrote about the Senate Permanent Subcommittee on Investigations Minority Staff report regarding the failure of three KPMG-audited banks in March-April 2023.
There’s no paywall on that newsletter because it deserves wide readership. Thousands of very interesting people did read it. But there was minimal mainstream media pickup for the report. I’ve been told that it’s hard to get the attention of the media, the public, and regulators when the Senate Minority Staff on the Permanent Subcommittee on Investigations can’t hold hearings to hold KPMG publicly to account. Other obstacles are media’s “accounting/audit makes my brain hurt” bias and the widespread feeling that the issues of Big 4 oligopoly and monopsony are intractable.
So far KPMG is winning. It has successfully counted on regulators doing nothing so far to hold the firm accountable:
“The Minority staff report is a misguided and erroneous opinion that stands as an outlier from the multiple investigations that have been conducted on these banks, none of which point to an auditor role in the failures.” KPMG statement on the Senate Permanent Subcommittee on Investigations Minority Staff report
Before we get into that I’d like to comment briefly on Day 1 of the AICPA Conference on Current SEC and PCAOB Developments in Washington on December 8, 2025. In particular, I want to add some context to provocative and, to me, shocking remarks by Chair Paul Atkins as the leadoff keynote of the day.
Here’s a transcript of the exact comments, with very light editing only to create complete sentences, taken from the transcript sidebar tool of the online broadcast from the conference:
I’m Julie Bell, Lindsay. I’m the CEO of the center for audit quality. Thanks for being here.
We’re gonna have a fireside chat with Chair Paul Atkins and then he will leave the stage that’s for about 25 minutes and then Kurt Hohl will join us to follow up on the chat....I’d like to welcome to the stage, the 34th Chairman of the Securities and Exchange Commission Paul Atkins.
JBL: Good to see you.
PA: Thank you.
JBL: Okay, we’re gonna dive right in. We have an audience here of a lot of accountants, auditors, financial preparers, public companies. What do you think should be the top areas of focus for this audience as we go into the reporting season?
PA: Well, thank you first, Julie, for having me here today, and this is good to see so many people here and I understand there are a lot of folks online. So, I think that’s really you know, that’s great. So, I guess, you know, the base, basically our theme right now with respect to the profession is to get back to basics. You know, we have to focus on things like, you know, integrity and objectivity and professional skepticism, which is the reason why we have auditors and, and accountants to begin with, of course, for protection of investors. So, they know how things are going and honesty and fairness and, you know, independence to avoid bias and, and that sort of thing. So all that is really, you know, very important, challenging management judgment and whatnot.
So, you know, then, you know, self-interest, I guess is the one thing that you know is troubling. Let’s just say about the last few years of, you know, what some of the events and some of the activities of the profession you know, the growing focus on issues and services, services that promote, you know, the own financial self-interest of some of the firms and accountants over, perhaps what investors are all are all about.
And I do have to say and, and wanna emphasize this right up front that especially over the last five or so years, I was really shocked at the focus of some of the firms on things that I think would have completely subverted, you know, the importance of financial materiality and financial financial accounting. And that’s some of the disclosure. Rules that were pushed forward at the SEC to the cheers, frankly, of some of the largest firms in the profession. And that, you know, the, you know, it would’ve subverted, SX. SX, you know, SK of course. And ultimately US GAAP.
And so those things I think are, you know, I’m looking to the profession to uphold and if you can’t even do that in the face of, you know, pressure from the government Or of your, of investors and, and even other things are so-called investors, frankly. Politicized investors. I think that’s a real problem. And some of these comment letters that were submitted to the SEC are still on firm’s website. So, I guess, you know, I guess you still stand by that.
So looking forward, we have a very heavy regulatory agenda coming up in next year. But basically, you know, I will look with rather skepticism, I guess, and, you know, discount some of the comments that come from the profession in this area.
It was frankly shocking to watch and hear Chair Atkins right out of the gate criticize the global audit firms for their comment letters and say he’d put less weight on their opinions going forward.
I immediately posted on LinkedIn:
There was some initial uncertainty expressed about which initiatives Atkins was referring to, but I knew right away it was the climate proposal. That’s because I had written myself about the firms’ self-interested support for the proposal on June 27, 2022.
In commenting on the SEC’s climate disclosure proposals, the largest Big 4 audit firms thoughtfully carve out what they want as their role and responsibility.
PwC’s comment letter, submitted on June 22, of course wholeheartedly agrees that “independent third-party assurance would provide investors with additional confidence in the quality of the emissions information and enhance its credibility,” and that the level of assurance provided for scope 1 and scope 2 emissions information should be at the same level as the financial statement audit, otherwise known as reasonable assurance. This feeling of PwC’s is based on its survey of US investors where it found that almost three-quarters (72%) think ESG metrics should be “assured” just like financial information.
The SEC proposes that a qualified attestation provider is one that has “significant experience in measuring, analyzing, reporting, or attesting to GHG emissions” with significant experience described as having competence and capabilities to perform engagements in accordance with professional standards and enable them to issue appropriate reports.
So PwC thinks that means state licensure laws should preclude anyone other than CPAs from performing these attest services.
Isn’t that convenient!
Because the SEC proposal says licensing, being subject to an oversight inspection program, and record-keeping requirements is important for providers of these attest services — gee I wonder where they got that idea — PwC recommends these providers be required to register with the Public Company Accounting Oversight Board (PCAOB) or similar independent oversight board. Is there one?
PwC also tells the SEC it believes the audit committee should have the same responsibility with regard to the appointment, compensation, retention, and oversight of the consultant providing the scope 1 and scope 2 attestation as it has hiring, oversight, and firing of the registered public accounting firm engaged to audit the financial statements.
And because these attest providers would be considered to be appearing and practicing before the SEC once the SEC creates disclosure requirements, PwC recommends that the SEC direct the PCAOB to expand its inspection oversight to encompass “reasonable assurance engagements” over GHG emissions.
Note that PwC acknowledges these attestation engagements are not financial statement audits, nor are they incorporated in financial statement audits. The language of “attestation” is intended to suggest the ESG work should be a special kind of “agreed-upon procedures” attestation consulting engagement that PwC thinks can only be done right by CPAs that are registered with the PCAOB and subject to its oversight and inspection regime.
Voilà
You can read the comment letters from Deloitte, EY and KPMG but, with regard to the attestation requirements, the recommendations might as well have been written by the same hand.
So, yes, I agree with Atkins that the Big 4 approach to the climate disclosure proposal was self-interested. But Atkins thinks it’s because they succumbed to pressures from “politicized investors” and I think it’s because it’s just in their nature to find ways to cash in on regulatory complexity.
I am also not sure why Atkins keeps harping on materiality. He says the proposal greatly expanded the materiality standards for financial statements. However, the proposal initially considered expanding materiality but the final rule did not. The standard in the final rule is SAB 99 and the Securities Acts and SEC Rules.
Workiva’s Steve Soter put out a Day 1 summary video that summed up the remarks well.
Media coverage eventually figured it all out and documented the borderline authoritarian threat to retaliate against the firms on future initiatives if they did not strip the offending comment letters from their sites.
Amanda Iacone at Bloomberg immediately after the remarks:
Soyoung Ho at Reuters the next day:
SEC Chair Criticizes Accounting Firms for Pushing Rules Driven by ‘Self-Interest’ Soyoung Ho, Checkpoint News Senior Editor December 9, 2025
At a conference, Securities and Exchange Commission (SEC) Chairman Paul Atkins strongly criticized accounting firms for having pressured the commission to adopt certain disclosure rules that do not necessarily reflect the traditional concept of materiality, issuing a stern warning to the firms.
While he did not explicitly say so in his remarks, he was referring to large firms, especially Big Four firms, that strongly supported the SEC’s rulemaking on climate disclosure during the previous administration. These firms would financially benefit by providing assurance services.
“Self-interest…is the one thing that is troubling; let’s just say about the last few years and some activities of the profession, the growing focus on issues and services that promote your own financial self-interest,” Atkins said at the AICPA Conference on Current SEC and PCAOB Developments in Washington on December 8, 2025.
The Biden-era climate disclosure rule adopted by the SEC when Gary Gensler was chair is on hold following a court ruling. With change to the Trump administration, federal government agencies abandoned everything related to environmental, social, and governance (ESG) matters. As for the climate change rule for public companies, the commission stopped defending the rule but has not yet formally rescinded it either.
Ho also documents that SEC Chief Accountant Kurt Hohl, a retired EY partner, was forced — maybe by comments he heard from some in and out of the room during and after Atkins spoke — to walk back the remarks later that morning.
At the end of the day Q&A, SEC Chief Accountant Kurt Hohl was asked about Atkins’ remarks.
In particular, the question concerned Atkins’ remarks that comment letters from the profession would be given less consideration, and how this approach could benefit the rulemaking process.
Hohl explained that when representatives from firms or companies visit the SEC to meet with the chair or others, Atkins “basically gave the same message to all the firms. And that is, ‘don’t let your pecuniary interests in rulemaking overcome your or outweigh the principles in which you basically stand by. And that is, he’s focused mainly on materiality of disclosures. And I think he’s mostly focused on the comment letters that came from the climate change rule proposals” which the firms supported.
He emphasized that this commission has inherited the climate change rule, and the SEC “is going to basically deal with the climate change rescission coming up soon.”
“I don’t anticipate that comment letters from practitioners and firms are going to be weighed less in the comment process,” Hohl said. “They’re all very important, and we encourage everybody to come in and talk to us, and we’ll weigh all those comments the same way.”
Even the official AICPA publication Journal of Accountancy had to note the harsh tone of Atkins’ comments:
Back to the basics.
Paul Atkins, installed as SEC chair in April, hammered that home Monday when he addressed attendees of the AICPA Conference on Current SEC & PCAOB Developments in Washington, D.C.
It’s expected that the Atkins SEC will find a way to roll back the new climate disclosure rule. Journal of Accountancy explains how the SEC will subvert support for disclosure rules approved by the previous administration:
In March, the SEC under then-acting chair Mark Uyeda – appointed by the Trump administration in January – announced that the commission would end its legal defense of the SEC’s first climate disclosure rules. Uyeda returned to his role as an SEC commissioner when the Trump administration appointed Atkins to the SEC chair role in April.
I wondered if the SEC had taken down the Big 4 firm comment letters or if any of the Big 4 had already taken down the letters from their websites. It looks like all of the firms still have comment letters to the SEC regarding The Enhancement and Standardization of Climate-Related Disclosures for Investors, on their own sites. All of the comment letters, including from the Big 4 audit firms are also still on the SEC site.
Matt Kelly of Radical Compliance had this to say:
Frankly it is surprising to see Atkins attack the firms, since he is typically their booster, their confidant, their vendor and consigliere.
It also seemed to me that Chair Atkins was nervous, as evidenced by his extensive use of “you know” and other fillers. That is surprising since he doesn’t show any shyness or hesitation when he’s on CNBC and Fox almost every day.
After the paywall, I’ll talk about how Flagstar and PacWest demonstrate just how politicized bank regulation has become, and not just by the current administration, especially if the auditor is the ubiquitous KPMG.