Legislative Proposal on Public Enforcement Proceedings

Thank you Mr. Chairman.

The Division of Enforcement would very much welcome a change to the Act's requirement for nonpublic disciplinary proceedings. Over the last few years, we have commenced litigation involving a broad range of audits and the enforcement program also has a significant inventory of ongoing investigations. Nonpublic disciplinary proceedings are a major stumbling block for the Board's enforcement program to most effectively protect investors and improve audit quality. As parties litigating with the Board take full advantage of this nonpublic feature of the Act, investors, the audit profession and others are prevented from knowing what auditor wrongdoing has allegedly occurred. Also, in the Division's view, in certain of these proceedings the defenses raised by the parties do not have substantial merit.

These proceedings are initiated after well-developed, fact-gathering investigations, in which the parties are entitled to many procedural safeguards such as right to counsel. Furthermore, before the Board decides whether to bring a disciplinary case, my Division generally provides those who may be charged with substantial notice of the potential charges against them and an opportunity to make a written submission explaining any disagreements or concerns they may have with the potential charges. First, those written submissions are diligently evaluated by the Division before it decides whether to make any disciplinary recommendation to the Board. Those written submissions are then provided to the Board to consider, along with the Division’s recommendation, in deciding whether to bring a case. Thus, those who face charges have their concerns carefully considered before the Board approves a litigated disciplinary proceeding.

The requirement for nonpublic proceedings prevents litigated proceedings from coming to light until long after the information would be most relevant to investors, other auditors, and other interested parties. The need to prepare for and staff litigation also consumes substantial resources which otherwise could be devoted to other important investigative work by the Board's enforcement program. With less than fifty enforcement staff, about half of which are attorneys, it only takes a modest cluster of litigated proceedings to soak up a substantial amount of our attorneys' time and effort. At the end of the day, because the Act's nonpublic proceedings shroud the results of a vast portion of the Board’s investigative work, the Board’s enforcement program is prevented from fully satisfying its investor protection objectives.

Thank you Mr. Chairman for your leadership on this important issue. The Division of Enforcement stands ready to assist in any way as the Board brings focus to this substantial impediment to the Board's efforts to protect investors.