Investing

SEC Settles Red Flag and Fraud Charges With National Audit Firm

Chris Lange

Published: December 2, 2015 12:55 pm

Last Updated: January 13, 2020 4:33 pm

The U.S. Securities and Exchange Commission (SEC) announced that Grant Thornton, a national audit firm, and two of its partners agreed to settle charges. Basically, the national audit firm ignored red flags and fraud risks while conducting deficient audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations. Grant Thornton admitted to wrongdoing and agreed to forfeit roughly $1.5 million in audit fees and interest plus pay a $3 million penalty.

Melissa Koeppel was an engagement partner on the deficient audits of both companies, and Jeffrey Robinson was an engagement partner on one of the deficient audits, which spanned from 2009 to 2011 and involved senior housing provider Assisted Living Concepts (ALC) and alternative energy company Broadwind Energy.

An SEC investigation found that Grant Thornton and the engagement partners repeatedly violated professional standards, and their inaction allowed the companies to make numerous false and misleading public filings.

Last December, the SEC announced fraud charges against two former ALC executives accused of making false disclosures and manipulating internal books and records by listing fake occupants at some senior residences in order to meet lease covenant requirements.

Earlier this year, the SEC charged Broadwind and senior officers with accounting and disclosure violations that prevented investors from knowing that reduced business was damaging the company’s long-term financial prospects.

Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said:

Audit firms must be held responsible when systemic failures such as inadequate engagement procedures, staffing, or supervision cause the firms’ work to fall significantly short of expected standards, particularly when multiple audits and engagements are involved. Grant Thornton was aware of red flags suggesting audit quality issues in the audits conducted by one of its engagement partners and its audit quality more generally, but failed to remedy the situation.

David Glockner, director of the SEC’s Chicago Regional Office, added:

Grant Thornton auditors recognized that representations by ALC and Broadwind management were questionable. Yet in the end, Grant Thornton accepted faulty explanations as the truth and failed to demonstrate adequate professional skepticism or obtain corroborating evidence.

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