Ernst & Young has agreed to pay $10 million as part of a settlement with the Securities and Exchange Commission (SEC) related to charges of auditor independence misconduct perpetrated by several partners of the Big Four firm to secure Sealed Air as a client.

Current assurance partner James Herring and former partners James Young and Curt Fochtmann each agreed to pay individual penalties in addition to being suspended from practicing before the SEC for their roles in the misconduct. Herring will pay $50,000 and be suspended at least three years, while Young ($25,000, two years) and Fochtmann ($15,000, one year) received lighter punishments.

In addition, William Stiehl, the former chief accounting officer at Sealed Air, agreed to pay $51,000 and be suspended at least two years for his role in the alleged scheme.

In the SEC’s order, Sealed Air is unidentified. The connection is based off disclosures by the company in 2019, when it announced it cut ties with EY as its auditor in addition to firing Stiehl, who had been promoted to chief financial officer by that time, following civil and criminal investigations launched into how it selected EY as its auditor.

Separately on Monday, Sealed Air announced the SEC closed its probe into the firm without intending to pursue enforcement.

The details: The three EY partners, led by Herring, and Stiehl conspired to interfere with the process Sealed Air’s audit committee had launched to select an independent auditor for fiscal year 2015 so that EY would get the job, according to the SEC. Herring and Stiehl had worked together as part of a previous engagement between EY and a former employer of Stiehl, forming a close relationship, the regulator stated.

Stiehl joined Sealed Air in January 2013 and quickly became part of internal discussions to retain a new auditor. During this time, he provided confidential information to Herring and EY, including “competing firms’ proposals and submissions, the details of each competitive bid, and all of the internal documents prepared for Issuer’s Audit Committee, often before the Audit Committee itself received them,” the SEC stated. This violated non-disclosure agreements signed as part of the process.

These details were circulated widely through EY and described as “competitive intelligence,” according to the SEC. EY was eventually named Sealed Air’s auditor and collected more than $13 million in FY2015 alone. Herring served as engagement partner, Young as coordinating partner, and Fochtmann as tax partner.

EY’s liability: “EY regional management and national leadership were, or should have been, aware of the conduct undertaken by EY Partners in connection with ultimately winning the engagement,” the SEC stated.

In particular, the SEC singled out that EY did not have proper internal policies on how to identify and avoid misconduct during the audit pursuit phase; did not provide personnel with training on maintaining independence during the pursuit phase; and did not review or monitor audit teams’ engagements for compliance with rules regarding audit independence, ethics, and integrity.

The methods the EY partners allegedly undertook to gain the Sealed Air contract prevented the firm from truly being independent in accordance with the Public Company Accounting Oversight Board’s rules and led to both EY and Sealed Air making false representations regarding independence in audit reports.

“Auditor independence requires auditors to analyze all of the relevant facts and circumstances from the perspective of the reasonable investor. EY and its partners lost sight of this fundamental principle in their pursuit of a new client,” said Charles Cain, chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit, in a press release. “This action further underscores that auditors must apply heightened scrutiny when making independence determinations.”

EY response: “The matter at issue occurred in 2014; since then, we have reinforced our policies and procedures when responding to requests for proposals and have implemented additional training, testing, and monitoring processes for compliance with these policies for all professionals involved in pursuits,” EY said in a statement. “Integrity and ethics are the cornerstones of our profession and maintaining the highest level of audit quality and independence is our top priority. We are fully committed to the critical role we play in providing independent assurance with respect to our clients’ financial reporting.”

EY’s remediation efforts were considered in the SEC’s determination to accept the settlement offer.