U.S. Securities and Exchange Commission charges BDO and Five Partners for Misleading Audit Opinions

U.S. Securities and Exchange Commission charges BDO and Five Partners for Misleading Audit Opinions

Today the SEC has filed charges against accounting firm BDO USA for dismissing red flags, and providing false and misleading opinions in the audit of services provider General Employment Enterprises

The SEC included fraud charges against Stephen B. Pence, the largest General Employment Enterprises shareholder and former chairman of the board.

BDO for its role, admitted wrongdoing and submitted penalties and interest of $2.1 million dollars. They also will overhaul their quality control processes.

“Audit firms must train their audit and national office professionals not only to recognize red flags but also to have the resolve to refuse signing off on an audit if there are unresolved material issues,” said Andrew Ceresney, Director of the SEC's Division of Enforcement. “BDO failed to do that here, even though these issues were elevated to the highest levels of its audit practice.”

The red flag warnings were in regards to a $2.3 million dollar CD that was not repaid upon its maturity date. Upon investigation, BDO received conflicting stories about the missing funds. BDO did raise the issue during the audit, but days later, without a reasonable explanation, withdrew the inquiry and issued their opinion on the 2009 and 2010 General Employment's annual reports. 

“Company executives and board members have an obligation to tell auditors the complete truth about corporate events and transactions,” added Andrew M. Calamari, regional director of the SEC's NYC office. “We allege that Pence misled auditors and investors while acting as a front man for a convicted felon who was actively scheming to misuse company funds.” 

To add to the mystery, the convicted felon referenced above, was Wilbur Anthony Huff, who had financed Pence's majority stake in General Employment Enterprises. Pence acted as Huff's agent, and received $500,000 in compensation and a $50,000 Cadillac Escalade.

Separate action by the SEC included charges brought against former CEOs Ronald E. Heineman and Salvatore J. Zizza. Without admitting the findings, they agreed to pay the SEC a penalty of $150,000 each.

Penalties against the BDO partners was much less. Without admitting or denying the SEC's findings, Gerace, Graul, Henaghan and Rainis agreed to penalties ranging from $10,000  to $30,000 dollars.

Click here to read the full SEC report

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