On July 29, the U.S. Securities and Exchange Commission (SEC) Office of the Whistleblower posted nineteen new Notices of Covered Actions (NoCAs). Each NoCAs signals that individuals may now submit whistleblower award applications for a specific enforcement action. One newly posted NoCA covers the recent $100 million penalty imposed on Ernst & Young LLP (EY).
On June 28, the SEC announced charges that EY audit professionals cheated on ethics exams and that EY withheld information from the SEC on the matter. The $100 million penalty imposed by the SEC is the largest ever for an auditing firm. The cheating scandal was internally revealed at EY by a whistleblower.
The SEC found that EY audit professionals cheated on CPA ethics exams “by using answer keys they had received from colleagues to pass exams and sharing answer keys with others,” according to the agency’s enforcement action. Furthermore, the SEC found that EY failed to disclose evidence of this misconduct to the SEC during an investigation into the matter.
“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division, in a press release announcing the charges. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct. This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”
Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the SEC with original information that leads to a successful enforcement action are entitled to monetary awards of 10-30% of the funds collected by the government.
The posting of a NoCA signals that individuals can apply for whistleblower awards for the EY enforcement action by submitting a completed Form WB-APP to the Office of the Whistleblower before October 27, 2022.
According to the SEC’s enforcement action, “[i]n December 2014, an internal EY whistleblower reported a flaw in the firm’s software that allowed professionals to pass CPE exams without the required number of correct responses.” This whistleblower prompted an internal EY investigation into the matter.
It is unclear whether or not the whistleblower ever contacted the SEC and whether or not the SEC considers the whistleblower as having provided original information that led to the enforcement action. The SEC posts NoCAs for all enforcement actions resulting in over $1 million in sanctions, regardless of whether or not a whistleblower was involved in the case.