SEC fines Ernst & Young for illegal lobbying


When it comes to lobbying compliance, no company is too big or small to come under scrutiny from a regulatory agency.

Case in point: In July 2014, Ernst & Young reached a settlement with the Securities and Exchange Commission (SEC), agreeing to pay more than $4 million related to accusations that the audit firm violated independence rules by lobbying on behalf of two clients. According to an article in The New York Times, Ernst & Young “agreed to forfeit $1.24 million, evidently the money it received for the lobbying, in addition to interest and a penalty of $2.48 million, adding up to $4.1 million.”

The case spotlights lobbying activity by Washington Council EY, which became an Ernst & Young subsidiary in 2000. According to SEC investigations, the subsidiary was not performing its duties independently and was involved in lobbying activities for nine years, although no members of the audit teams were aware of the occurring violations. In 2012, the firm voluntarily stopped performing lobbying work for clients registered with the SEC.

The SEC cited three lobbying efforts on behalf of the first audit client. The first instance states that Ernst & Young “informed the client that a bill was scheduled to be voted on in the House and arranged for a letter supporting the legislation to be delivered to legislative staff members before the vote was taken.” In the second instance, Ernst & Young sent a letter recommending legislation supported by the client to legislative leaders. The third instance was a request for an amendment to pending legislation.

As for the second audit client, the SEC indicated that Ernst & Young met with legislative aides to discuss legislation that, if enacted, would have damaging effects on the client. Ernst & Young proposed alternative language to protect its client’s interests.

This article was reprinted from the Winter 2015 Compliance Connections Newsletter. Download the complete Winter 2015 issue here

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