Issuer Disclosure in Settled Enforcement Actions at the PCAOB

It is a pleasure to speak with you today.

I should mention at the outset that the views I express today are my own and do not necessarily reflect the views of other Board members, the Board or the staff of the PCAOB.

As you know, the PCAOB has the authority to inspect audit firms, adopt standards and bring enforcement actions.[1] In connection with our enforcement actions, our enabling statute requires confidentiality of the proceedings,[2] something that is typically maintained from the commencement of the investigation through any appeal to the SEC.[3] Most investigations that result in charges are, however, settled. When we settle a case, we issue a public order that includes a description of behavior we alleged to have occurred, the provisions we assert were violated, the identity of the audit firm and/or associated person involved, and the sanctions.

Where the alleged behavior involved an audit failure, we would often include the name of the public company in the order. We would omit the identity of the issuer in circumstances such as the violation of our documentation standards or the failure to cooperate.

Our Division of Enforcement and Investigations recently published considerations that would guide recommendations to the Board on the inclusion of the name of the public company in a settled order.[4] The framework provides for an assessment based on facts and circumstances and lists three explicit factors where the staff will generally recommend disclosure of the identity of the issuer in cases involving alleged deficiencies in the audit. The three factors mostly involve circumstances where the identity of the issuer and the relevant behavior have already been made public.[5]

The approach arises out of the notions of fairness,[6] presumably recognizing that issuers are not regulated by the PCAOB and are not involved in the settlement. Fairness may also reflect concerns that identification could suggest problems with the issuer's financial statements, something not addressed in the investigation.

While I agree that in some circumstances omission of the identity of a public company is appropriate, I believe that the recently announced staff framework could result in recommendations that would significantly expand the circumstances where nondisclosure would occur.[7]

In my opinion, we would benefit from hearing the thoughts of investors, other stakeholders, and the public about this framework. Do investors find the disclosure of the identity of the issuer valuable and how have investors made use of the information. Is the approach in the staff framework appropriate? Given the non-involvement of the issuer in our enforcement cases, how should we weigh fairness to the issuer? Does disclosure of the issuer harm existing shareholders by raising potential concerns about the financial statements? Should the staff consider other factors in resolving whether to identify an issuer in a settled enforcement order? If so, what are those other factors?

I would encourage you to communicate with us on this issue. You can write or meet with us. If you want to send us an email, I recommend you contact our newly established liaison office at [email protected]. But also, feel free to contact me directly – I am really interested in hearing your thoughts.

Finally, if you write or email, consider asking us to post your correspondence on our website or otherwise make the communication public. This way, others who have an interest in the same topic can see the dialogue and may be encouraged to add to the discussion.[8]

Thank you in advance for your interest and for sharing your thoughts.

[1] 15 USC §7211.

[2] 15 USC §7215(d). Confidentiality for hearings may be waived by agreement of the parties. See 15 USC §7215(c)(2).

[3] Confidentiality usually remains in place upon appeal to the U.S. Securities and Exchange Commission through the issuance of a decision.

[4] See PCAOB Staff Considerations on Recommending the Identification of Issuers and/or Broker-Dealers in Settled Enforcement Orders, As the guidelines note: "The considerations outlined do not establish Board rules or Board policy. The Board retains full discretion to determine whether to approve any particular settlement recommendation presented to it."

[5] The policy does provide for a recommendation of disclosure of the issuer where a regulator "plans to take public action. . ."

[6] The framework provides that the staff will seek to balance "the goal of transparency with fundamental fairness to issuers and broker-dealers."

[7] As of September 6, 2019, the PCAOB has issued 20 settled disciplinary orders this year. Of these, the issuers are named in 4 orders and are not named in 16. See the following link for all settled orders: .

[8] As a DC non-profit, we are not subject to the Freedom of Information Act and not otherwise required to make these sorts of communications public, see 15 USC §7211.