Audit Firm Settles Charges for Violating Auditor Independence Rules
Sept. 13, 2018
File No. 3-18762
September 13, 2018 - The Securities and Exchange Commission today announced settled charges against audit firm Holthouse Carlin & Van Trigt LLP ("HCVT") for its systemic failure to maintain its independence when conducting Custody Rule and broker-dealer audits.
According to the settled order, between 2012 and 2016, HCVT violated the SEC's independence standards because it both prepared and audited its clients' financial statements, accompanying notes, and accounting entries. Specifically, HCVT conducted 57 audits for the private funds managed by four registered investment advisers under the SEC's Custody Rule, which requires advisers holding client assets to have their funds' financial statements audited by an independent, PCAOB-registered auditor. During that same period, HCVT also conducted six audits for four broker-dealers. Audit firms conducting Custody Rule and broker-dealer audits must comply with the SEC's independence standards under Regulation S-X, which, according to the order, HCVT did not do.
The SEC's order found that HCVT violated the SEC's independence standards, and in doing so: (a) it caused its four investment adviser clients to violate Section 206(4) of the Advisers Act and Rule 206(4)-2, also known as the Custody Rule, and caused its four broker-dealer clients to violate their reporting requirements under Section 17(a) and Rule 17a-5 of the Exchange Act; (b) the firm violated its own reporting requirements under Rule 17a-5(i) of the Exchange Act; and (c) it engaged in improper professional conduct within the meaning of Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) of the SEC's Rules of Practice. Without admitting or denying the SEC's findings, HCVT agreed to the entry of a cease-and-desist order, a censure, and to pay a $300,000 civil penalty. HCVT has also agreed to an undertaking that will require the firm, for a period of one year, to cease any engagements involving audits of fund financial statements under the Custody Rule or of broker-dealer financial statements, any public company audits, or any other assurance service arising from a SEC rule. If HCVT wants to later engage in that line of work, it must retain an independent compliance consultant for a three-year period and certify to the SEC that it has complied with all of the consultant's recommendations regarding the firm's auditor independence practices.
The investigation was conducted by Manuel Vazquez and Lorraine Pearson, and supervised by Robert Conrrad.