Over Dissent, SEC Stiffens Penalty on KPMG Accountants

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By Rob Tricchinelli

Aug. 8 — The SEC slapped a pair of KPMG LLP executives with a harsher punishment than an in-house judge had given them, over the dissent of one commissioner who disagreed with the sterner sanction ( In re Aesoph, SEC, Admin. Proc. File No. 3-15168, 8/5/16 ).

The Securities and Exchange Commission barred John Aesoph and Darren Bennett from accounting practice before the agency with the ability to apply for reinstatement. Aesoph can apply in three years, Bennett in two.

The agency alleged that the two failed to properly audit TierOne Bank related to financial crisis losses. Administrative Law Judge Carol Fox Foelak suspended Aesoph for a year and Bennett for six months, holding their conduct was unreasonable because they didn't sufficiently scrutinize TierOne's loan and lease losses (126 SLD, 7/1/14).


The accountants appealed to undo the sanction and the SEC's Enforcement Division cross-appealed, asking for a more severe penalty (134 SLD, 7/13/16).

The commission agreed with the enforcement staff, approving the sanctions in a 2-1 decision, with Commissioner Michael Piwowar partially dissenting.

“By imposing a permanent bar with the right to apply for reinstatement after three years and two years, the majority of the Commission has imposed a punitive sanction that goes far beyond what the Division requested,” Piwowar said, even though he agreed that the pair's conduct was improper.

“The reinstatement process, even if successful, can take years to complete after the requisite time period has expired,” Piwowar added.

The majority said that “a bar with the right to apply for reinstatement after a period of years” is the agency's “usual practice.”


SEC enforcers argued that the accountants used bank managers' assessments about collateral loan valuations without adequate evidence and that they ignored warning signs in financial statements about TierOne's internal controls.

On appeal, Aesoph and Bennett also argued that the SEC's administrative law judges are unconstitutionally hired, but the commission followed precedent to knock back that claim.

Bennett was represented by Sidley Austin LLP. Aesoph was represented by Gibson, Dunn & Crutcher LLP.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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