PCAOB Turns Up the Heat on Auditors Involved in Firm Violations

PCAOB Expands Liability for Auditors Involved in Firm Violations

The Public Company Accounting Oversight Board expanded liability for individuals involved in firm violations and proposed tighter rules around one of the ways auditors gather evidence to detect financial misstatements.

The U.S. audit watchdog on Wednesday voted, 5-0, to change the threshold for liability for contributors to accounting firms’ violations of auditing standards, lowering it to negligence from recklessness. The contributors are usually partners in charge of an audit or another firm that assisted in the work.

Under the existing rule, which dates to 2005, the PCAOB can hold contributors liable for firm violations if they act recklessly, meaning they took an extreme departure from the standard of ordinary care either known to them or so obvious they must have been aware….

Musk Pay Victory Removes Cloud at Tesla, but Fresh Legal Fight Looms

Tesla shareholders’ backing of Elon Musk’s multibillion-dollar compensation package helps clarify his immediate future atop the world’s most valuable automaker. Now the electric-car company has to figure out how to pay him.

Musk and Tesla face legal opposition to the stock-option deal that was passed in 2018, now valued at roughly $48 billion. The latest vote is also being challenged in court.

The company’s board has argued that shareholder support for the plan would resolve concerns raised by the judge who rescinded the original plan, potentially leading the court to reverse its decision. Legal experts say the vote won’t automatically change the judge’s mind.

Terraform and Kwon to Pay $4.5 Billion Following Fraud Verdict

“This case affirms what court after court has said: The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws,” said SEC Chair Gary Gensler. “Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt. Terraform and Kwon fought our efforts to investigate – taking a fight over investigative subpoenas all the way to the Supreme Court. Thankfully, with this settlement, the victims of their massive fraud will now get some justice.”

“Do Kwon and Terra orchestrated one of the largest securities frauds in U.S. history by, among other things, falsely claiming that they had achieved the Holy Grail of crypto: a non-illicit use case. As the jury found, that was a lie, as was their claim of creating an ‘algorithmic stablecoin.’ In the end, all they succeeded in doing was lying to investors, wiping out tens of billions of dollars in market value, and creating a trail of victims,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Today’s multi-billion dollar settlement not only holds them accountable and prioritizes the return of hundreds of millions of dollars to harmed investors, but also makes clear that, despite the vast resources that crypto asset defendants deploy against us, the dedicated staff of the Division of Enforcement will not stop until they achieve justice for the victims of these breathtaking frauds.”

SEC Files “AI-Washing” Enforcement Action Against AI-Based Start-Up Founder

There are several points about these circumstances that bear emphasizing. The first is that the enforcement action was accompanied by a parallel criminal complaint…

Another thing that readers will want to note is that Joonko was a private company, yet its CEO is the subject of a SEC enforcement action alleging violations of the federal securities laws. It is not news that the federal securities laws apply to private companies, but from time to time it is worth re-iterating that the U.S. securities laws do not just apply to publicly traded companies.

One other note about this latest action is that while the SEC has now brought several AI-related enforcement actions, the SEC has still not yet brought an AI-related action against a listed company. Although at this point we can only speculate, I suspect that it is only a matter of time before the agency targets a listed company in an AI-related action.

Ether ETF Approval Could Come This Summer, SEC Chair Says

Final approval of exchange-traded funds linked to Ether, the world’s second-most popular digital asset, could come during the summer, Securities and Exchange Commission Chair Gary Gensler told lawmakers.

“Individual issuers are still working through the registration process that’s working smoothly,” Gensler said during a Thursday hearing before a Senate Appropriations subcommittee.

Gensler’s remarks are yet another indication that the much-awaited launch of Ether ETFs could be getting closer. The SEC approved an initial round of applications last month from several exchanges to trade the products.