CPA / Auditor Settles Charges for Violating Auditor Independence Rules

ADMINISTRATIVE PROCEEDING
File No. 3-22432

January 17, 2025 - The Securities and Exchange Commission today announced settled administrative and cease-and-desist proceedings against Jeffery Q. Johnson, CPA ("Johnson") for his failure to maintain his independence when conducting Custody Rule audits.

According to the SEC’s order, in 2020, Johnson violated the SEC's independence standards because he both prepared and audited clients’ financial statements for the fiscal year 2019. Specifically, the order finds that Johnson, as engagement partner at BKD, LLP, conducted two audits for two private funds managed by an SEC-registered investment adviser 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. Auditors conducting Custody Rule audits must comply with the SEC's independence standards under Regulation S-X, which, according to the order, Johnson did not do. 

The SEC's order further finds that Johnson engaged in improper professional conduct within the meaning of Section 4C of the Securities and Exchange Act of 1934 and Rule 102(e)(1)(ii) of the SEC’s Rules of Practice by violating the SEC's independence standards, and that in so doing he caused an investment adviser audit client to violate Section 206(4) of the Advisers Act and Rule 206(4)-2, also known as the Custody Rule. 

Additionally, according to the settled order, in February 2020 Johnson violated a prior Commission order denying him the privilege of appearing or practicing before the Commission as an accountant by signing two consents allowing audit reports he had signed for a private company to be included in registration statements, filed with the Commission, of a company that had acquired the private company. Johnson also violated the prior Commission order by conducting the audits pursuant to the Custody Rule audit exception.

Without admitting or denying the SEC's findings, Johnson agreed to be suspended from appearing or practicing before the SEC as an accountant, to the entry of a cease-and-desist order and to pay a $30,000 civil penalty.

The investigation was conducted by Lucee Kirka and Carol Kim, and supervised by Robert Conrrad in the Los Angeles Regional Office.  Brad Darfler and Raymond Clark of the Division of Examinations in the San Francisco Regional Office assisted with the investigation.