Weil: SEC goes after faulty audits
The Securities and Exchange Commission is finally doing something that desperately needed to be done: Suing the auditors of a failed bank that got caught cooking its books.
Wednesday the SEC's enforcement division accused two accountants at KPMG LLP of engaging in unprofessional conduct during their 2008 audit of TierOne Corp., a Lincoln, Neb.-based lender that had about $3 billion in assets when it collapsed in 2010. The agency hasn't reached settlements with either of the men, John Aesoph, 40, and Darren Bennett, 35, and their lawyers didn't immediately return phone calls.
The SEC's administrative order accuses the pair of "failing to subject TierOne's loan loss estimates one of the highest risk areas of the audit to appropriate scrutiny." It also said they "violated numerous PCAOB audit standards, failed to obtain sufficient competent evidential matter to support their audit conclusions, and failed to exercise due professional care and appropriate professional skepticism." (PCAOB stands for Public Company Accounting Oversight Board.)
The SEC already had filed accounting-fraud claims against three former TierOne executives, two of whom reached settlements and paid fines last September. As I asked at the time: When will the SEC finally go after the auditors? At least in these particular auditors' instance, the answer is today.
It was TierOne's regulator, the U.S. Office of Thrift Supervision, that caught the bank's accounting manipulations not KPMG, which continually blessed TierOne's financial statements and resigned as auditor only weeks before the bank failed in 2010. Last year TierOne's Chapter 7 bankruptcy trustee sued KPMG, accusing it of negligence and breaches of fiduciary duty. The SEC hasn't filed claims against KPMG itself.
It has been frustrating to look at the SEC's own highlights of the lawsuits it has filed in connection with the financial crisis and to see that none of them had been against an auditor. Now the SEC will have one case to cite, albeit against a couple of small fries.
It also should be stressed that the agency hasn't proved any of its allegations against these two accountants. Surely the SEC can find some bigger targets out there in the auditing world if it wants to.