On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting.
None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years.
These cases are interesting for at least three reasons:
- They were announced together to send a message about the SEC’s focus on its agenda to strengthen accounting and controls at public companies.
- The cases are about controls, and not about disclosure. Material weaknesses in ICFR are not just a disclosure issue: a continuing failure to maintain adequate controls is a violation of law, even if the failure is fully disclosed and there is no other disclosure problem.
- The cases join several recent instances in which the SEC has shown a willingness to use the internal controls provisions of the Securities Exchange Act of 1934 independently of specific disclosure requirements.
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