The Securities and Exchange Commission is sending another warning about fraud prevention by pursuing top executives at a small company for failing to stop a massive fraud, although legal experts are divided on whether it sends the right message.

Koss Corp., which produces consumer electronics, and its president and CEO, Michael Koss, recently settled an enforcement action with the SEC for an embezzlement and accounting fraud of more than $30 million. Koss, however, was not the perpetrator; former finance vice president Sujata Sachdeva and her senior accountant, Julie Mulvaney, carried out the scheme.

Michael Koss, who remains president and CEO, ...