## Facts

- A national bank rapidly expanded through a loan securitization program, prompting repeated regulatory criticism of its financial reporting and controls.
- The bank entered a supervisory agreement requiring it to retain a nationally recognized independent accounting firm to audit its mortgage operations and accounting for securitized loans.
- Grant Thornton, LLP was engaged to perform an external audit focused on verifying the accuracy of the bank’s books and related accounting.
- The Office of the Comptroller of the Currency (OCC) later concluded the audit was recklessly deficient under generally accepted auditing standards and enabled the bank to conceal serious problems.
- In an administrative enforcement proceeding under 12 U.S.C. § 1818, the OCC treated Grant Thornton as an “institution-affiliated party” (IAP) on the theory it had “participated in the affairs” of the bank.
- The Comptroller issued a $300,000 civil money penalty and a cease-and-desist order imposing conditions on Grant Thornton’s future audits of depository institutions.
- Grant Thornton petitioned for judicial review, challenging the OCC’s statutory authority and the legal basis for characterizing the audit work as an “unsafe or unsound practice.”

## Issues

1. Whether an external auditor “participates in the conduct of the affairs” of a bank and thus qualifies as an IAP under 12 U.S.C. § 1813(u)(4)(C).
2. Whether a recklessly deficient external audit constitutes an “unsafe or unsound practice” “in conducting the business or affairs” of a bank under 12 U.S.C. §§ 1818(b)(1) and 1818(i)(2)(B)(i)(II).
3. Whether the OCC’s interpretation of §§ 1813(u) and 1818 unreasonably expands its enforcement authority to regulate independent auditors’ professional standards.

## Decision

- The court vacated the OCC’s final decision, the $300,000 civil money penalty, and the cease-and-desist order.
- The court held that an accounting firm that “merely perform[s] an external audit aimed solely at verifying the accuracy of a bank’s books” is not engaging in an unsafe or unsound practice in conducting the bank’s business or affairs within the meaning of § 1818.
- Even assuming statutory ambiguity, the court concluded the OCC’s construction was unreasonable and therefore not entitled to deference because it would convert deficient audit work into a bank safety-and-soundness violation and effectively make the OCC an overseer of auditing standards.
- The court resolved the case on statutory scope and did not remand for additional fact-finding about the quality of the audit.

## Legal Principles

- “Institution-affiliated party” status for outside professionals under 12 U.S.C. § 1813(u)(4)(C) is limited; providing a discrete, independent professional service is not necessarily “participat[ion] in the conduct of the affairs” of a bank.
- The “unsafe or unsound practice” provisions in 12 U.S.C. § 1818 target practices undertaken in conducting the bank’s own business or affairs, not external evaluations of that business from an independent standpoint.
- An agency interpretation that materially enlarges regulatory jurisdiction beyond the statutory context and apparent congressional design is unreasonable and not entitled to deference, even when statutory language has some flexibility.

## Conclusion

The D.C. Circuit set aside the OCC’s penalty and cease-and-desist order because an external auditor’s allegedly reckless failure to meet auditing standards, without a managerial or operational role at the bank, does not fall within § 1818’s reach over unsafe or unsound practices in conducting a bank’s business or affairs.


Grant Thornton, LLP v. Office of Comptroller of the Currency, 514 F.3d 1328 (D.C. Cir. 2008)