SEC Says E&Y Partners Got Too Friendly With Clients

By:
Chris Gaetano
Published Date:
Sep 19, 2016
SECURITIES-AND-EXCHANGE-COMMISSION-facebook

Big Four firm Ernst and Young has agreed to pay the Securities and Exchange Commission $9.3 million to settle charges related to two audit partners who got a little too chummy with their clients, according to the SEC

The first, Gregory S. Bednar, was brought in to improve its relationship with a troubled client. Bednar and the company's CFO became fast friends, staying overnight at each other's homes on multiple occasions, as well as travelling together with their respective families on overnight trips with no valid business purposes. The SEC said that Bednar also became friends with the CFO's son, and would treat him to sporting events and other gifts. The SEC also pointed to hundreds of text messages, emails and voicemails during auditing periods. 

The second, Pamela Hartford, was in a romantic relationship with financial executive Robert Brehl, whose company she was auditing. While another partner became aware of the situation, he failed to raise concerns or conduct a reasonable inquiry as to whether this violated independence rules. 

“These are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors.”

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