The Securities and Change Fee charged Prime 20 agency CohnReznick LLP and three of its companions Wednesday with improper skilled conduct on engagements for 2 shoppers in 2017, and the agency agreed to pay a $1.9 million penalty to buyers.
The 2 shoppers, Sequential Manufacturers Group, Inc. and the cryptocurrency enterprise Longfin Corp., had been beforehand charged by the SEC for submitting fraudulent monetary statements previous to their bankruptcies and Nasdaq delisting (see story). The SEC additionally charged companions Stephen M. Wyss, Stephen H. Jackson and Robert G. Hilbert with improper skilled conduct for violating skilled requirements of their third quarter 2017 interim overview and 2017 annual audit of Sequential’s monetary statements. All of the respondents agreed to settle fees with the SEC and pay penalties.
In response to the SEC, CohnReznick improperly accepted Sequential’s rivalry that its goodwill was not impaired or lowered in worth within the third quarter of 2017. Regardless of CohnReznick’s nationwide workplace companions and the agency’s personal valuation specialists expressing considerations with Sequential’s conclusion, the agency didn’t receive enough proof or conduct extra procedures. The SEC order discovered that CohnReznick’s poor system of high quality management led to failures to stick to skilled auditing requirements. Sequential, a shopper manufacturers firm that labored with celebrities like Jessica Simpson to market their trend manufacturers and owned chains like Joe’s Denims and Avia, filed for chapter final August.
CohnReznick workplace in Miami
As for the Longfin audit, the SEC order mentioned CohnReznick and its nationwide workplace failed to handle recognized points involving related-party transactions that had been employed by Longfin to fraudulently inflate its revenues. Longfin voluntarily delisted from the Nasdaq in Might 2018 and went out of enterprise later that 12 months.
A second associated order discovered that on a number of events from the tip of 2016 by way of the second quarter of 2017, Wyss accepted Sequential administration’s assertions that goodwill was not impaired regardless of robust indicators of impairment. The SEC additionally discovered that within the third quarter of 2017, Wyss, Jackson and Hilbert noticed indications that Sequential’s goodwill impairment take a look at wasn’t supported by enough proof, however they nonetheless accepted Sequential’s conclusion that goodwill wasn’t impaired though extra audit procedures hadn’t been carried out that may have been applicable.
“Auditors are crucial gatekeepers that should make use of a strong system of high quality management to make sure trustworthy adherence to skilled requirements,” mentioned Melissa Hodgman, affiliate director within the SEC’s Division of Enforcement in an announcement. “CohnReznick’s poor system and repeated failures to train due skilled care in any respect ranges, from the engagement workforce up by way of the agency’s nationwide workplace, not solely allowed however had been a explanation for each Sequential’s and Longfin’s disclosure violations.”
With out admitting or denying the SEC’s findings, CohnReznick agreed to pay a $1.9 million penalty, to be censured, and to retain an impartial guide who would overview and consider its audit, overview and high quality management insurance policies and procedures, in addition to abide by sure restrictions on retaining new audit shoppers throughout the guide’s overview.
The agency mentioned it’s working to enhance its audits and quality control. “Integrity and high quality are the cornerstone of our agency,” CohnReznick mentioned in an announcement. “We’re dedicated to offering audit providers of the best high quality and fulfilling our essential function within the capital markets. Over the previous 5 years, now we have considerably expanded our nationwide assurance workforce and carried out a steady enchancment initiative to watch and improve our high quality management construction. These essential actions guarantee we’re delivering the best high quality providers and upholding the agency’s long-standing popularity for excellence and integrity.”
With out admitting or denying the SEC’s findings, Wyss and Jackson agreed to pay civil penalties of $30,000 and $20,000, respectively, and never seem or follow earlier than the SEC as accountants. They’ve the best to use for reinstatement after three years and one 12 months, respectively. For his half, with out admitting or denying the SEC’s findings, Hilbert agreed to pay a civil penalty of $30,000 and a censure. All of the auditors additionally agreed to a cease-and-desist order. They didn’t instantly reply to requests for remark.