SEC Defines Improper Conduct

The Securities and Exchange Commission has amended Rule 102(e), under which the SEC can censure, suspend, or bar certain professionals, including accountants, for various types of misconduct, including intentional conduct, highly unreasonable conduct, and repeated instances of negligent conduct.

Prompted in response to a court case that found the rule to be vague, the SEC now defines improper professional conduct for CPAs as:

Intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standards; or either of the following two types of negligent conduct:

(1) A single instance of highly unreasonable conduct that results in a violation of applicable professional standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted.

(2) Repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a lack of competence to practice before the Commission.

Prior to the amendment, the rule had no clear definition, and instead the SEC handled improper conduct on a case-by-case basis.

In announcing the new definition, SEC Chairman Arthur Levitt said, "[The SEC's] action sends a strong and clear message that accountants must meet their professional obligations and that incompetence won't be tolerated."