The SEC charged a company for violating internal accounting controls requirements pursuant to Exchange Act Section 13(b)(2)(B) in connection with its stock buyback program based on the nonconformance of the underlying buyback trading plans with Rule 10b5-1, which was a condition of the board’s share repurchase authorization. Exchange Act Section 13(b)(2)(B) generally requires companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that corporate transactions are executed and access to assets is permitted only in accordance with management’s general or specific authorization.
SEC Commissioners Peirce and Uyeda dissented, asserting that the SEC’s Order confused internal accounting controls, with which the company complied, with other types of internal controls that were at issue here. As such, they asserted that the Order was groundless. In footnote 4 of the Order, the SEC cited support for the application of Section 13(b)(2)(B) beyond financial statements to include conformance of transactions with management’s authorization. In “Called to Account: SEC's Latest Internal Accounting Controls Action Reignites Debate,” Holland & Knight analyzes the SEC’s citation in relevant context and suggests—consistent with the dissenting statement—that it fails to support the SEC’s action.