SEC Fines Accountants Over Missed Red Flags In Securities Fraud Case
CPA Firm Grant Thornton, LLP and two of its partners were recently sanctioned by the U.S. Securities and Exchange Commission over claims that they missed red flags when inspecting two publicly traded companies that were the focus of SEC enforcement actions due to accounting violations and other issues.
An admission of wrongdoing from Grant Thornton, and a $3 million fine, was part of the settlement. In addition, Grant Thornton had to disgorge more than $1.5 million in audit fees and prejudgment interest.
Two managing partners for Grant Thornton’s Wisconsin practice settled with the SEC – Melissa Koeppel and Jeffrey Robinson. Neither admitted or denied wrongdoing, but agreed to be temporarily suspended from practicing before the commission. They were also required to pay penalties of $10,000 and $2,500 respectively. Ms. Koeppel and Mr. Robinson were the engagement partners on the allegedly botched inspections.
Assisted Living Concepts, Inc. and Broadwind Energy, Inc. were the businesses that experienced the deficient audits. Two Assisted Living executives were previously accused by the agency of fudging their books and records in a bid to meet loan covenants. Regarding Broadwind, the SEC maintained that Broadwind failed to disclose a significant impairment charge after its connection with two important customers deteriorated. Robinson was involved in the Assisted Living Concepts reports, while Koeppel was involved in the audits of both companies, according to the SEC.
The SEC stated that Grant Thornton auditors recognized that representations by Assisted Living Concepts and Broadwind management were questionable. However, Grant Thornton accepted faulty explanations as the truth and failed to demonstrate adequate professional skepticism or obtain corroborating evidence.
The SEC said Grant Thornton, as well as Koeppel and Robinson, were aware of the concerns regarding Assisted Living Concepts’ claim that it could satisfy its loan covenants for residential facilities it operated by viewing employees and other non-residents as occupants. The SEC’s accusations were that the occupants were fraudulently invented to avoid falling afoul of their loan agreements.
Regarding Broadwind, the SEC said Koeppel and Grant Thornton relied on an unsupported claim by the company that a $58 million impairment charge had not occurred before a 2010 major public offering. The SEC said that they knew, or should have known, that the charge should have been included in earlier filings.
The SEC further alleged that Grant Thornton was aware of concerns about Koeppel’s work, but allowed her to audit public companies while failing to take steps that could have prevented the allegedly misleading statements from Assisted Living Concepts and Broadwind.
Grant Thornton is required by the SEC to have all of its audit professionals undergo at least 32 hours of training, eight of which must be devoted to the importance of exercising due care and professional skepticism in evaluating audit evidence. Grant Thornton is also required to produce a report by an independent consultant that will recommend improvements to its compliance procedures.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust. Attorney Scott Starr has experience in making recoveries from accountants who negligently perform services to security fraudsters to the detriment of investors.