UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 37761 / September 30, 1996 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 835 / September 30, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9131 ____________________________________ : ORDER INSTITUTING In the Matter of : PROCEEDINGS AND OPINION : AND ORDER PURSUANT TO MONTE S. COLBERT, CPA, : RULE 102(e) OF THE : COMMISSION'S RULES OF Respondent. : PRACTICE ___________________________________: I. The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that public administrative proceedings be and they hereby are instituted against Monte S. Colbert, CPA, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.-[1]- II. In anticipation of the institution of these administrative proceedings, Colbert has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, and without admitting or denying the facts, findings, or conclusions herein, Colbert consents to entry of the findings, and the imposition of the remedial sanctions set forth below. ---------FOOTNOTES---------- -[1]- Rule 102(e)(1) provides in relevant part that the "Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct." ==========================================START OF PAGE 2====== III. FINDINGS On the basis of this Order and Colbert's Offer of Settlement, the Commission finds the following:-[2]- Monte S. Colbert, age 40, is a certified public accountant licensed by the State of New York. Among other employment, from 1989 until 1994, Colbert audited the financial statements of a registered broker-dealer as a sole practitioner. This Opinion and Order relates to Colbert's conduct in auditing the 1991 through 1993 financial statements of that broker-dealer. Rule 17a-5 under the Securities Exchange Act of 1934 requires a broker-dealer to file with the Commission annual reports that are audited by an independent public accountant. The broker-dealer first engaged Colbert to audit its 1989 financial statements. For each audit year thereafter until 1993, Colbert conducted the audit of the broker-dealer. Each of the audit reports, which were dated February 12, 1992, February 13, 1993, and February 25, 1994, stated that the audits were conducted in accordance with generally accepted auditing standards ("GAAS") and that the firm's financial statements were presented fairly in conformity with generally accepted accounting principles. Near the end of 1991, Colbert inquired about working for the broker-dealer as a broker. The broker-dealer agreed to sponsor Colbert for the licensing examination given by the National Association of Securities Dealers, Inc. ("NASD"). Colbert was hired by the broker-dealer to become a salesperson on January 13, 1992, and he passed the NASD's Series 7 examination on February 5, 1992. Between the date he passed the NASD's examination and February 1, 1994, Colbert was responsible for initiating transactions for certain customers of the broker-dealer and received commissions in connection with those transactions. Therefore, beginning with his engagement for the year-end 1991 audit and continuing through his engagement for the year-end 1993 audit, Colbert was employed by the broker-dealer firm. The audits of a broker-dealer's annual financial statements must be conducted in accordance with GAAS, and the auditor must be independent in compliance with Section 210.2-01(b) of Regulation S-X. GAAS requires auditors to be independent with respect to their clients. American Institute of Certified Public Accountants, Codification of Statements on Auditing Standards AU ---------FOOTNOTES---------- -[2]- The findings herein are made pursuant to the Offer of Settlement submitted by Colbert and are not binding on any other person or entity named as a respondent in this or any other proceeding. ==========================================START OF PAGE 3======  220. An auditor's independence is impaired if "[d]uring the period covered by the financial statements, during the period of the professional engagement, or at the time of expressing an opinion, [the auditor] . . . [w]as connected with the enterprise . . . in any capacity equivalent to that . . . of an employee." American Institute of Certified Public Accountants, Code of Professional Conduct Rule 101, Interpretation 101-1.B. The Commission requires compliance with substantially the same standard in Section 210.2-01(b) of Regulation S-X. See Rules 17a-5(f)(3) and (g)(1). Colbert did not comply with these independence requirements in auditing the broker-dealer's 1991, 1992, and 1993 financial statements. Based on the foregoing, the Commission finds that Colbert engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice. IV. ORDER Accordingly, IT IS HEREBY ORDERED that: Pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice, Colbert is denied the privilege of appearing or practicing before the Commission as an accountant. By the Commission. Jonathan G. Katz Secretary