When the SEC in September 2024 charged Olayinka Oyebola for his alleged role in enabling a massive fraud by Nigerian businessman Dozy Mmobuosi, it slipped in a little-noticed request among the relief it sought from the federal court.
Alleging he had abdicated his professional obligation as independent accountant and financial industry gatekeeper, the SEC asked the U.S. District Court for the Southern District of New York for the following relief: a permanent bar on Oyebola and his firm from serving in an accounting or financial reporting role at a public company in connection with the preparation of SEC-filed financial statements; providing substantial assistance in the preparation of those statements; or acting as a public company auditor.
A month later, it sought much the same practice bar in its complaint against former Lovesac Co. Chief Financial Officer Donna Dellomo and ex-Controller Yoon Um (while omitting the term “permanently.”) And again, in March, in its complaint against New York accountant Glen Leibowitz.
If that requested relief sounds familiar, it is because it parallels the SEC’s long-standing in-house mechanism for suspending accountants from appearing or practicing before the commission under Rule 102(e) of its Rules of Practice.
The SEC has traditionally launched administrative actions to suspend accountants. Faced with constitutional questions, it is now looking to shift from its internal process toward seeking that relief in a federal court for litigated matters.
“We respectfully ask, why now?” Dellomo questioned in an April 3, 2025, brief urging the court to reject the SEC’s bid for a court-imposed practice bar.
The why now appears to be directly tied to the Supreme Court’s June 2024 decision in SEC v. Jarkesy, in which the High Court concluded the SEC, under the Seventh Amendment, must route fraud cases involving potential monetary penalties through federal district court and not its internal administrative tribunals. That ruling cemented a years-long shift the SEC had already undertaken away from litigated administrative proceedings.
Jarkesy did not directly address the constitutionality of non-monetary relief, such as bars and suspensions. The commission, however, with little explanation last year opted to dismiss a cluster of contested 102(e) administrative proceedings against accountants following the ruling.
Roughly around the same time, it began asking courts to “fashion” the new conduct-based injunction mirroring a 102(e) suspension, under the courts’ power to grant equitable relief.
“I think they find themselves walking a little bit of a tightrope, in the sense that the SEC still feels a need to regulate particularly the auditing profession, because that is part of the fabric of regulation of the securities markets that we have here in the United States,” said Jones Day Partner David Peavler, noting the Supreme Court’s decades-old conclusion that auditors serve a “public watchdog” role. “And so there’s an important function for them to play.”
But in the wake of cases like Jarkesy, “the SEC is kind of without a crystal-clear tool for doing that,” added Peavler, who served nearly two decades at the SEC before leaving in 2022.
It might be easy to dismiss the SEC’s recent strategy as a vestige of the tail end of former Chair Gary Gensler’s term, during which the commission embraced some creative enforcement theories in other areas. But it has endured, at least for now, amid the transition to a new presidential administration and a Republican-run commission.
Republican Commissioner Mark Uyeda stepped in as acting chair following Gensler’s departure in January, with Sam Waldon serving as acting director of enforcement. Incoming Chairman Paul Atkins, confirmed by the Senate earlier this month, is expected to name his own slate of division directors.
“I don’t think we have enough data to know whether this is going to be something that is persistent under the Atkins administration, what this is going to look like when he has a permanent enforcement director in place, and what’s going to be the appetite for using conduct-based injunctions to potentially get relief that may only otherwise be obtained in an administrative proceeding,” said Scott Mascianica, a former SEC enforcement official who now heads up the government investigations and regulatory enforcement practice at Hilgers Graben PLLC.
“I do think the fact that we see that here, in a post-Gensler world, suggests it is not something that – at least as of the current state today, with the current front office – is off the table,” he added.
Synthetic 102(e)
The debate represents an inversion of the traditional federal court versus administrative proceeding battle lines, in which the targets of enforcement actions, such as in Jarkesy, have historically sought to drag matters into district court and away from SEC-employed administrative law judges (ALJs).
Now, the SEC is seeking a court-based remedy – what Peavler dubs a “synthetic 102(e)” – while the defense points to the enforcement tools available to the commission administratively.
In the three cases:
- Oyebola and his firm are alleged to have enabled and concealed “a massive, multi-year fraudulent scheme” carried out by Mmobuosi and entities he controlled. The allegations include that the firm issued clean audit opinions for the inaccurate financial statements for one entity, Tingo Mobile, despite “numerous and glaring” weaknesses in its internal controls, and that Oyebola misled another auditor by relaying falsified wire transfer records, among other misconduct.. Separately, Mmobuosi and three entities were subject to a $250 million default judgment in August.
- The SEC charged furniture maker Lovesac Co., Dellomo, and Um in U.S. District Court for the District of Connecticut stemming from the company’s mishandling of $2.2 million in improperly recorded “last mile” shipping expenses. It alleges Dellomo and Um committed accounting fraud by working to obscure those expenses in the company’s books. Lovesac has agreed to pay a $1.5 million penalty, while Dellomo and Um are litigating.
- The SEC filed its complaint against Leibowitz, former chief financial officer of cannabis company Acreage Holdings, Inc., in the Southern District of New York. The complaint alleges Leibowitz caused journal entries to be falsified, lied to a director, and made false and misleading statements to the company’s auditor as part of an aborted “round-trip” transfer scheme to inflate the company’s year-end cash balance.
Of those cases, only the Dellomo/Um matter has seen extensive briefing focused on the SEC’s proposed practice bar, which the two defendants have each asked the court to strike.
Dellomo, represented by Bruch Law Group PLLC, in a January 24 brief called the SEC’s request unprecedented in a contested matter and said the agency should be seeking the relief through “the well-trod legal remedy pursuant to Rule 102(e).”
The brief points to three types of relief available to the SEC in a civil enforcement action: injunctions prohibiting future violations, monetary penalties, and – under the language of the Securities Exchange Act of 1934 – any “equitable relief that may be appropriate or necessary for the benefit of investors.” Equitable relief, Dellomo argued, aims to restore the status quo that existed prior to the alleged wrongdoing. A practice bar, however, “is unlike any historically grounded equitable remedy.”
“Litigants may not simply use equity to get around statutory or administrative difficulties.” she argued in the brief.
Dellomo further argued that Congress specifically provided for court remedies aimed at specific conduct, such as an officer-and-director bar, which the SEC is also seeking against Dellomo and Um. But nowhere, she argued, has Congress explicitly given the SEC the power to ask a court to bar an accountant from practicing before the commission.
The SEC in a March 7 filing laid out its justification for why the court should “fashion a conduct-based injunction preventing Dellomo and Um from practicing as accountants before the Commission on the basis of their fraud (if ultimately found liable).” It cast the defendants’ arguments as premature, arguing they should be raised instead at the remedies phase.
The court has the discretion, the commission argued, to impose the conduct-based injunction under its statutory and equitable powers, pointing among other sources to that Exchange Act language.
The commission, among other arguments, leaned on the Supreme Court’s 2020 decision in Liu v. SEC surrounding whether the commission had the authority to seek disgorgement in federal court, even while it had explicit statutory authority to do so via an administrative proceeding. The Liu court concluded that disgorgement, so long as it doesn’t exceed a wrongdoer’s profits and is awarded to victims, qualifies as equitable relief under the Exchange Act .
“There are multiple examples over the past 10 to 20 years, even longer, of the Commission requesting a district court employ its general equitable authority to mirror relief that would appear to be provided for in other places,” said King & Spalding LLP Partner Aaron Lipson.
Lipson said it is not unexpected the SEC “is being thoughtful, potentially creative, in how it responds to more limitations on its administrative forum post-Jarkesy.”
“Sometimes the commission is more willing to try to do something new, or more expansive or creative, when it’s a litigated district court case,” he said. “Because at the end of the day in those settings, the commission is simply alleging facts and requesting relief, they are not creating a functional precedent themselves through settlement, they are allowing the district court, whose job it is to weigh law and evidence, to decide ‘is this remedy appropriate?'”
“And I think that sometimes makes the commission itself much more comfortable with doing something new or different,” Lipson added.
In the three cases in question, the SEC is alleging the defendants either engaged in or enabled fraud, or, in the Leibowitz matter, falsified accounting records and lied to an auditor.
Peavler flagged one potential challenge for the SEC seeking practice bars in district court in other instances where it alleges only negligence and not fraud, the traditional “bread and butter” 102(e) case. He noted one criteria for an injunction in district court is the likelihood of repetition.
“In other words, you need this injunction to prevent them from doing it again, and in a lot of these accounting malpractice type situations, how do you prevent somebody from being negligent? Peavler said. “How do you enjoin them from making errors?”
“Can you take simple acts, perhaps even a serious act of malpractice, and convince a court that ‘this person should be kicked out of the industry,’ essentially,” he said. “And I think that is going to be a challenge for the SEC in straight negligence or malpractice type cases,” he said.
The SEC’s effort to pioneer a conduct-based injunction against accountants may be more broadly significant for other regulated entities, with the future of its use of ALJs still in flux.
In a separate matter in February, the SEC signaled it would drop a key defense around the constitutionally of its own administrative judges, aligning with a policy shift by the Trump Justice Department, and casting still greater doubt about the future of its administrative adjudication.
Mascianica noted that practice bars and prohibitions can have far more seismic impacts on an individual’s career than a monetary penalty. The issue of whether the SEC continues to use conduct-based injunctions to deal with potential ALJ issues is “massively significant,” he said, questioning whether the commission might expand that strategy to broker-dealers or investment advisers, or associated persons.
This article originally appeared in the April 21, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.
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