SEC’s Earnings Fraud, Auditor Liability Cases Plunge Under Trump

The SEC under the second Trump administration is on track for its least active docket of earnings fraud and auditor liability cases since Ronald Reagan occupied the White House.

Fresh priorities under new leadership at the Securities and Exchange Commission—along with a staff exodus and a 43-day government shutdown—have stunted the regulator’s efforts to hold companies and their outside auditors accountable.

The SEC has issued just 20 enforcement actions so far this year involving violations that range from accounting errors to fraud, as well as audit failures.

That case count falls far short of the 79 financial reporting-related actions the Wall Street watchdog has issued on average annually since the start of President Donald Trump’s first term in 2017, according to case data compiled by professors at the University of Southern California.

“It’s truly a historic lack of enforcement this year,” said William Floyd, an accounting analyst and adviser to Floyd Advisory.

The steep drop in enforcement comes as the SEC considers reducing the frequency of corporate financial reporting to just twice a year. At the same time, a run-up in stock values for tech firms that dominate the market has sparked concerns about the underlying economics of those companies.

“We need this watchdog to be making sure everybody is doing the right thing,” Floyd said.

The SEC declined to comment on its recent record policing financial accounting and auditors tasked with vetting corporate revenue and asset values.

Former SEC enforcement lawyers, forensic accountants, and other commission watchers warn that despite the steep slowdown, the regulator continues to pursue accounting and audit failures. Companies still risk facing future enforcement actions from any ongoing probes, even under the SEC’s new enforcement paradigm.

Since the government re-opened Nov. 13, the SEC has suspended two CPAs and fined an investment management company for an auditor independence violation.

Enforcement Drought

Financial accounting and auditing cases typically decline during the first year of a new presidential administration, according to four decades of such enforcement actions tracked by USC accounting professors Patricia Dechow and Richard Sloan. Hiring new division directors and rolling out new agency priorities takes time.

The Wall Street watchdog finalized its most significant actions so far this year in the final days of the outgoing Biden administration. Among those early 2025 cases, American Electric Power Inc. reached a $19 million settlement with the SEC over payments made to an entity at the center of a bribery scandal. E-commerce platform GrubMarket Inc. also reached an $8 million settlement for overstating revenue.

Formal agency orders are on pace to drop by more than two-thirds this year, however—the biggest post-inauguration decline since the 1980s. Enforcement actions slipped by nearly one-third in the opening year of Trump’s first term.

Electronic filing of corporate financial reports didn’t start until the 1990s, making it harder for the SEC to identify earnings manipulations before then. The few enforcement actions brought weren’t publicized as widely as they would be today, Dechow said.

“It should be easier nowadays to find companies doing unusual things because of the electronic filing,” she said.

A confluence of factors contributed to the current drought in enforcement, including SEC Chair Paul Atkins’ focus on frauds that directly hurt investors.

“Resources are limited in any organization, including the SEC, so hard decisions must at times be made,” Atkins said in an October speech. “We must go after cases of genuine harm and bad acts, but we must view cases of benign or innocent actions differently.”

Atkins’ SEC is operating with fewer forensic accountants and lawyers to dig through corporate records and audit documents. The agency by June had shed 15% of its workforce through buyouts and early retirement incentives.

Meanwhile, the fall government shutdown halted much of the regulator’s work for more than a month soon after key staff were in place to help deliver on Atkins’ enforcement vision.

Procedural hurdles have also slowed the tempo of cases, including those that involve accountant professional violations. The agency has increasingly brought such cases in federal court as constitutional challenges have curbed the SEC’s use of its in-house judges.

Priority Shift

Agency watchers expect the SEC to focus on clear-cut accounting and auditing violations that mislead shareholders. Plus, global companies listed in the US likely will face renewed SEC scrutiny of their financial statements and the work of the outside auditors they hire.

Unintentional errors in a controller’s reasoning behind a complex accounting judgment or infractions of strict auditor conflict-of-interest rules are less likely to draw formal reprimands.

Revenue fraud, often with phony customers or sham transactions, along with big-ticket swings from asset impairments, will still trigger SEC scrutiny, said Tom Bednar, a partner with Cleary Gottlieb Steen & Hamilton LLP and a former enforcement trial lawyer for the commission.

“Regardless of the administration, the SEC knows that having integrity in financial statements is important and is going to continue to do enforcement in that space,” Bednar said.

SEC enforcement staff continue to look into potential violations of US accounting and auditing standards, including an inquiry into MassMutual’s investment income accounting.

“We are not seeing really a significant slowdown in activity at the investigation level” or the start of new inquiries, Ellen Burns, associate general counsel for Deloitte LLP, told an audit conference at Baruch College in November.

Any recently launched probes, however, could take years to surface, said Stephen Bucci, a forensic accountant and managing director with FTI. Bucci was previously an enforcement accountant at the SEC.

“This might be the best commission in a while to actually self-report to,” Bucci said. “Do your investigation and come up with the resolution and then get in front of the issues.”