## Facts

- David J. Checkosky and Norman A. Aldrich, certified public accountants at Coopers & Lybrand, audited Savin Corporation, a publicly traded photocopier company.
- During 1980–1984, Savin deferred about $37 million in costs associated with developing a new copier model by classifying them as “start-up” costs rather than expensing them as research and development costs.
- Checkosky and Aldrich issued audit reports stating Savin’s financial statements conformed with GAAP and that the audits complied with GAAS.
- In 1987, the SEC initiated administrative disciplinary proceedings under Rule 2(e)(1)(ii) (authorizing discipline for “improper professional conduct”), and an ALJ suspended the accountants from practicing before the SEC for five years.
- In a prior appeal, the D.C. Circuit remanded because the SEC had not adequately explained what “improper professional conduct” meant under Rule 2(e)(1)(ii).
- On remand, the SEC again sustained sanctions but relied on multiple, inconsistent formulations of the “improper professional conduct” standard.

## Issues

1. Whether the SEC, after remand, adequately articulated a single, coherent, reasoned interpretation of “improper professional conduct” under Rule 2(e)(1)(ii) sufficient to support professional discipline.
2. If the SEC did not comply with the remand, whether the proper remedy was another remand or an order directing dismissal of the disciplinary proceedings.

## Decision

- The D.C. Circuit remanded with instructions that the SEC dismiss the proceedings.
- The court held the SEC had not made meaningful progress toward providing a single, coherent interpretation of “improper professional conduct” after the prior remand.
- Given persistent non-explanation and indications the agency was unlikely to cure the defect promptly, the court applied the rare remedy of dismissal rather than ordering another remand.
- The court largely avoided revisiting the underlying accounting merits, focusing instead on the administrative-law requirement of reasoned decisionmaking.

## Legal Principles

- An agency imposing professional sanctions must supply a reasoned explanation of the legal standard it applies and apply that standard consistently.
- After a remand requiring clarification of an operative standard, an agency’s reliance on shifting or inconsistent interpretations can render its decision arbitrary and inadequate for judicial review.
- In rare cases of repeated failure to explain after remand, an appellate court may order dismissal rather than repeatedly remanding, to enforce accountability in agency decisionmaking.

## Conclusion

The D.C. Circuit required dismissal of the SEC’s Rule 2(e) disciplinary case because, even after remand, the SEC failed to articulate and apply a single coherent standard for “improper professional conduct,” making the sanctions unsustainable under basic requirements of reasoned agency action.


Checkosky v. Sec. & Exch. Comm’n, 139 F.3d 221 (D.C. Cir. 1998)