The US regulator the Securities and Exchange Commission (SEC) has suspended an accountant for conducting a faulty audit of the financial statements of a public company that was committing fraud, and the firm where he was a partner at the time has been prohibited from accepting new public company clients for one year
New York-based accounting firm EFP Rotenberg also agreed to pay a $100,000 penalty to settle the SEC’s charges, and it can only begin accepting new public company clients again next year after an independent consultant certifies that the firm has corrected the causes of its audit failures.
Partner Nicholas Bottini agreed to pay a $25,000 penalty in addition to being permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.
The sanctions relate to the failed audit of Illinois-based ContinuityX Solutions., a publicly-traded company that claimed to sell internet services to businesses and whose executives have since been charged by the SEC for allegedly engineering a scheme to grossly overstate the company’s revenue through fraudulent sales.
The SEC alleges that 99% of ContinuityX’s reported revenues of $27.2m (£20.7m) from April 2011 to September 2012 came from fraudulent and fictitious sales. It claims the former CEO David Godwin and former chief financial officer Anthony Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities. As a result, Godwin received $1.3m in compensation from ContinuityX and Roth received $351,800 in compensation and $456,098 of profits from sales of ContinuityX stock.
The SEC says that during the audits of ContinuityX, EFP Rotenberg and Bottini failed to perform sufficient procedures to detect the fraudulent sales in the company’s financial statements. The firm and accountant also failed to obtain sufficient audit evidence over revenue recognition and accounts receivable, identify related party transactions, investigate management representations that contradicted other audit evidence, perform procedures to resolve and properly document inconsistencies, and exercise due professional care.
David Glockner, director of the SEC’s Chicago regional office, said: ‘Auditors are supposed to act as gatekeepers to protect the integrity of our markets, but EFP Rotenberg and Bottini failed to live up to their professional obligations.’
