SEC Cites ‘Harry Potter Fantasy,’ Presses Forward on Ernst Sanctions
The war of words between the Securities and Exchange Commission and Big Four firm Ernst & Young continues as the SEC has pledged to move forward with banning E&Y from accepting new audit clients for six months.
SEC lawyers are pushing for sanctions against E&Y as a result of independence issues related to the CPA firm’s relationship with software developer PeopleSoft in the late 1990s.
The SEC is likening E&Y’s defenses to the popular Harry Potter books and calling them "another work of fantasy, concealed in lawyerly bombast, but fantasy just the same."
"While the fun of Harry Potter is its other-world view, its power has been said to lie in the real-world truths it reveals," the SEC said. "By contrast, while the interest of E&Y's brief is its apparent real-world view, its power lies in the truths it conceals."
Earlier this month, E&Y lawyers called the SEC’s allegation and suggested new client ban “outrageous,” and vowed to fight the accusations.
The SEC, in its quest to help restore investor confidence, has indicated that a strict penalty against E&Y is in order. "These remedies are necessary to reassure the investing public, whose confidence in the financial markets, in no small measure, depends on the perceived independence of public company auditors," the SEC brief said.