UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933
Release No. 8355 / January 20, 2004
Securities Exchange Act of 1934
Release No. 49101 / January 20, 2004
Accounting and Auditing Enforcement
Release No. 1945 / January 20, 2004
File No. 3-11377
SEC INSTITUTES ENFORCEMENT ACTION AGAINST GRANT THORNTON, DOEREN MAYHEW AND OTHERS IN CONNECTION WITH FINANCIAL AND OFFERING FRAUD BY MICHIGAN MORTGAGE BANKING COMPANY
IN THE MATTER OF GRANT THORNTON LLP, DOEREN MAYHEW & CO. P.C., PETER M. BEHRENS, CPA, MARVIN J. MORRIS, CPA, AND BENEDICT P. RYBICKI, CPA
The Securities and Exchange Commission announced today that it has instituted public administrative proceedings pursuant to Commission Rule 102(e) and cease-and-desist proceedings against Grant Thornton LLP, Doeren Mayhew & Co. P.C., Peter M. Behrens, Marvin J. Morris and Benedict P. Rybicki for misconduct in connection with their audit of MCA Financial Corporation's financial statements for the fiscal year ended January 31, 1998.
At the time, MCA was a mortgage banking company based in Southfield, Michigan. Grant Thornton is a national accounting firm headquartered in Chicago, Illinois. Doeren Mayhew is an accounting firm based in Troy, Michigan. Grant Thornton and Doeren Mayhew jointly audited MCA's 1998 annual financial statements. Behrens, a 46-year-old resident of Troy, Michigan, is a partner in the Detroit office of Grant Thornton. Morris, a 60-year-old resident of Grosse Pointe Park, Michigan, and Rybicki, a 40-year-old resident of Grosse Pointe Park, Michigan, are directors of Doeren Mayhew.
In the Order Instituting Proceedings the Commission's Division of Enforcement alleges that in connection with the 1998 MCA audit, the respondents caused and aided and abetted MCA's violations of the antifraud and reporting provisions of the federal securities laws, violated or caused and aided and abetted violations of Section 10A of the Exchange Act and engaged in improper professional conduct.
Specifically, the Division alleges:
- MCA violated the antifraud and reporting provisions of the federal securities laws by filing materially false and misleading 1998 annual financial statements with the Commission and using those financial statements in connection with a public offering of debentures.
- MCA's 1998 annual financial statements were materially false and misleading because MCA utilized related party transactions to inflate and mischaracterize its income, assets and equity.
- Behrens and Morris were the engagement partners for the 1998 MCA audit. Rybicki was the engagement manager for that audit.
- during the audit, the respondents knew that MCA failed to disclose several million dollars of material, related party transactions in its 1998 annual financial statements.
- despite this knowledge, Grant Thornton and Doeren Mayhew jointly issued a report containing an unqualified opinion on MCA's 1998 annual financial statements and consented to the inclusion of their report in MCA's debenture offering materials.
- the respondents failed to inform MCA's Board of Directors that MCA's 1998 annual financial statements did not disclose millions of dollars of material, related party transactions.
- the respondents did not adequately plan the 1998 MCA audit, did not act with sufficient skepticism in conducting the audit, and did not obtain enough evidence to support their conclusions and, thus, engaged in improper professional conduct.
A hearing will be scheduled before an administrative law judge to determine whether the Division's allegations are true, to provide the respondents an opportunity to dispute the allegations, and to determine what remedial sanctions are appropriate under the circumstances of this case. The Commission directed that an administrative law judge shall issue an initial decision in this matter within 300 days from the date and service of the Order.
See also the Order in this matter