The Securities and Exchange Commission charged Big Four firm Ernst & Young, one of its partners, and two of its former partners with improper professional conduct for violating auditor independence rules in trying to become the auditor of Sealed Air, a publicly held company with close to $5 billion in revenue. The SEC also charged the issuer’s former chief accounting officer for his role in the offense.
The SEC found that EY, its partner James Herring, and former partners James Young and Curt Fochtmann interfered with the issuer’s selection of an independent auditor by soliciting and receiving confidential competitive intelligence, along with confidential audit committee information from the issuer’s former chief accounting officer, William Stiehl, during the request for proposal process.
Stiehl had a long relationship with EY, the SEC said. From 2004 through December 2012, he served in internal audit and in senior financial roles for two public companies at which EY was the independent auditor. During the request for proposal process (RFP), Stiehl recruited EY to aid in drafting portions of Sealed Air’s RFP for a new auditor without the committee’s knowledge, as well as consulting with EY before his presentation to the audit committee of his views on the bidding audit firms.
The former chief accounting officer also scheduled for EY to meet with his finance team at least a month before arranging for other firms to do so. Stiehl also assisted EY draft its bid proposal to meet a bid by Sealed Air’s then-current auditor, KPMG. EY was named Sealed Air’s independent audit for fiscal year 2015.
“Auditor independence is not merely an obstacle to overcome, it is the bedrock foundation that supports the integrity, transparency, and reliability of financial reporting,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit. “Auditor independence requires auditors to analyze all of the relevant facts and circumstances from the perspective of the reasonable investor. EY and its partners lost sight of this fundamental principle in their pursuit of a new client. This action further underscores that auditors must apply heightened scrutiny when making independence determinations.”
EY and its accused partners consented to the charges without admitting to or denying the claims. The Big Four firm has agreed to a censure, to pay a civil money penalty of $10 million, and to comply with a comprehensive set of undertakings for two years. Herring, Young, and Fochtmann agreed to pay civil money penalties of $50,000, $25,000, and $15,000, respectively, and to be suspended from appearing or practicing before the Commission, with a right to reapply for reinstatement after three, two, and one years, respectively. 