During last month’s Securities Enforcement Forum in Washington, DC, securities enforcement and white collar criminal defense attorneys highlighted an important shift of priorities happening within the Division of Enforcement at the U.S. Securities and Exchange Commission.
In recent years, the agency has initiated markedly fewer Accounting and Auditing Enforcement actions (AAERs). AAERs investigate potentially material misstatements or omissions in a reporting company’s SEC filings. The AAER examines whether a public company’s internal controls over financial reporting were not sufficient to protect against material misstatements or omissions regarding the company’s financial position, as opposed to the misstatement or omission resulting from intentional fraud or other improper acts. In other words, the internal controls must provide the company, and its independent auditor, reasonable assurance that the financial statements fairly present all material aspects of the company’s financial position.
The decline in AAERs suggests that emerging issues like crypto, foreign investment, and other priorities may be taking precedence over these cases, and the trend will likely continue under SEC Chairman Paul Atkins. In 2023, the SEC’s Division of Enforcement initiated a total of 83 AAERs. Fiscal year 2024 saw a decrease to 45 AAERs, and the number further declined to only 37 in fiscal year 2025.
AAERs are typically very resource-heavy given the complexity of the accounting and audit issues involved, and often take years to investigate before resolution. Recently, the SEC has begun to rely on other theories of liability, such as disclosure violations or engaging in improper business activities that result in financial misstatements rather than pursuing an accounting or audit-based action. Nonetheless, the Division of Enforcement’s financial reporting and accounting cases, whether labeled as AAER cases or not, appear to follow the "back-to-basics" approach Atkins repeatedly identifies as the core characteristic of his enforcement strategy.
Current 'Back to Basics' SEC Enforcement Focus
The Division of Enforcement appears willing to continue to bring cases regarding misleading or deficient disclosures that impact investors' access to complete and accurate information regarding a company’s financials, even though the cases themselves are not articulated as accounting and auditing issues. These cases are factually grounded in financial reporting violations such as improper revenue recognition, channel-stuffing, or using non-generally accepted accounting principles (GAAP) financial measures without the necessary reconciliation to GAAP numbers or adequate explanation of the use of the non-GAAP measure. However, they are pursued as instances of more generic misconduct rather than deep-rooted accounting controls failures.
For those cases that are characterized as an AAER action in 2025, a significant number have been brought against individuals based on prior criminal cases against public issuers. Evidence of fraud or intentional misconduct already uncovered in the criminal investigation simplifies the SEC’s AAER investigation and reduces the resource requirements for an agency that is already stretched thin.
One recent example is the criminal case against Aspiration Partners, a financial technology and sustainability services company, and its co-founder Joseph Neal Sanberg. On August 21, 2025, Aspiration and Sanberg agreed to plead guilty to defrauding lenders and investors by improperly booking revenue before the funds had been received. Sanberg used other companies under his control to make the payments, fraudulently overstating Aspiration’s revenue. Sanberg pleaded guilty to two counts of wire fraud on October 20, 2025. The SEC’s litigation release identifies the case against Sanberg as an AAER. The SEC filed the complaint against Sanberg in the Central District of California on August 21.
Sources of Current Accounting-Related Actions
It is likely that the Division of Enforcement will continue to rely on tried and true sources of potential violations: financial restatements, whistleblower reports, and voluntary self-reporting.
Restatements
Historically, restatements of previously issued financial disclosures have been a strong source of enforcement actions. An 8-K disclosure that prior financial statements may no longer be relied upon must include an explanation of the error, its impact on the company’s financial statements, and the affected periods, all of which provide a clear path through the Division of Enforcement’s investigation. However, the increasing number of financial restatements, coupled with recent reductions in staff at the SEC, will likely result in a more selective review of restatements to identify those resulting from potential fraud. As an alternative, the Division of Enforcement may initiate informal inquiries regarding a restatement, providing an opportunity for companies and defense counsel to explain the circumstances surrounding the restatement, rather than the SEC immediately issuing a formal order of investigation.
Whistleblowers and Self-Reporting
The SEC’s Whistleblower Program remains active, and whistleblower reports will continue to be fully investigated. The SEC continues to encourage self-reporting of potential violations, often acknowledging a company’s cooperation with a reduced monetary penalty or decreasing other restrictions resulting from the self-reported action. These reports can be used to determine when to initiate an investigation and to streamline the process.
Internal Controls Issues: Opportunities for Defense Counsel to Spark Corporate Inquiry
Given Atkins’s focus on fraud and intentional misconduct as part of enforcement activity, it is unclear whether the Division of Enforcement will use lesser internal controls failings, such as books and records violations, as an "offramp" when an investigation results in no finding of fraud but does uncover a material weakness or significant deficiency in internal controls. While internal controls failings will still be resolved by some administrative action, it is unclear whether the Division of Enforcement will look for some identifiable actor bearing responsibility for the deficiency before bringing an internal controls case.
Even if no enforcement action results from an internal controls deficiency, public companies and their counsel should appreciate the implications of internal controls failings. Potential weaknesses in internal controls over financial reporting typically signal other issues that should be investigated. Defense counsel should encourage their clients to review controls, remediate any potential issues, and consider the potential for fraud as a result of these weaknesses.
Responding to investigations is only the final step in a company’s efforts to examine the integrity of financial statements, and one they seek to avoid. The lack of an enforcement action does not excuse a deeper review of a company’s internal controls over financial reporting.
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