SEC Sues Independent Directors for Accounting and Disclosure Fraud
The SEC has filed a lawsuit against the independent directors of a company charged with accounting and securities fraud, accusing the directors of securities fraud and aiding and abetting securities fraud and disclosure violations. The SEC alleges that the three independent directors, who had close personal and business relationships with the CEO, ignored obvious red flags and allowed significant accounting fraud to continue. Red flags included auditor “material weakness” letters, auditor resignations, and complaints from a terminated controller. One of the auditors stated that the Audit Committee, comprised of the three independent directors, was itself a material weakness because the "conduct of the audit committee did not demonstrate its understanding of its oversight role of the Company's external financial reporting and internal control over its financial reporting processes."
OUR TAKE: Although this is an extreme set of facts, it shows the SEC’s willingness to use the securities laws against directors. Traditionally, the states were thought to have jurisdiction with respect to corporate governance.
Posted by Todd Cipperman at 3/1/2011 6:53 AM 
Categories: Funds
Tags: independent directors audit committee liability
Categories: Funds
Tags: independent directors audit committee liability
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