The Securities and Exchange Commission today 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 LLP 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. The accountant, 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.
According to the SEC’s order instituting a settled administrative proceeding, the failed audit pertained to Illinois-based ContinuityX Solutions Inc., 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’s order finds 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. EFP Rotenberg and Bottini 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.
“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,” said David Glockner, Director of the SEC’s Chicago Regional Office.
The SEC order finds that EFP Rotenberg violated and Bottini aided and abetted and caused EFP Rotenberg’s violations of Sections 10A(a)(1) and 10A(a)(2) of the Securities Exchange Act of 1934 and Rule 2-02(b)(1) of Regulation S-X. The order also finds that EFP Rotenberg and Bottini engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) and (iii) of the SEC’s Rules of Practice. EFP Rotenberg and Bottini agreed to cease and desist from committing or causing any violations of Sections 10A(a)(1) and 10A(a)(2) and Rule 2-02(b)(1) without admitting or denying the findings in the order.
The SEC’s investigation has been conducted by Justin M. Delfino and Ann M. Tushaus of the Chicago office, and the case has been supervised by Steven L. Klawans and Scott J. Hlavacek.