UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 50745 / November 29, 2004
Accounting And Auditing Enforcement
Release No. 2144 / November 29, 2004
Admin. Proc. File No. 3-11748
PUBLIC ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST KENNETH L. RUBIN, CPA, AND MICHAEL W. LEWIS, CPA, ALLEGING IMPROPER PROFESSIONAL CONDUCT
The Securities and Exchange Commission announced today that it has instituted public administrative proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice to determine whether Kenneth L. Rubin, CPA, (Rubin) and Michael W. Lewis, CPA, (Lewis) engaged in improper professional conduct in the performance of their audit of Eisner Securities, Inc. (ESI) for its fiscal year ended December 31, 2000. Rubin and Lewis are both Certified Public Accountants licensed in Missouri. Rubin is a partner and Lewis is a manager with the accounting firm of Rubin, Brown, Gornstein & Co., LLP (RBG) in St. Louis, Missouri.
In the Order Instituting Proceedings (Order), the Division of Enforcement (Division) and the Office of the Chief Accountant (OCA) allege that Rubin and Lewis failed to comply with professional auditing standards in connection with their audit of ESI's 2000 year end financial statements. The Division and OCA allege that Rubin and Lewis failed to exercise due professional care and to exercise professional skepticism in performing the ESI audit, and that they failed to render an accurate audit report. The Division and OCA allege that ESI was a broker-dealer located in St. Louis, Missouri, that was placed in SIPC liquidation in October 2001. The Division and OCA allege that from at least October 2000 until it ceased conducting business in September 2001, ESI failed to accrue a liability for more than $2 million that was misappropriated from at least 11 customer accounts by a former ESI branch manager. The Division and OCA allege that Rubin and Lewis flagged the misappropriations as a key client issue in planning the ESI audit and that Rubin and Lewis were in possession of conflicting information regarding the effect of the misappropriations on ESI's financial statements. The Division and OCA allege that Rubin and Lewis nonetheless failed to obtain sufficient competent evidential matter to evaluate the effect of the $2 million misappropriation on ESI's financial statements.
The Division and OCA allege that RBG rendered an audit report containing an unqualified opinion on ESI's financial statements for its fiscal year ended December 31, 2000. The Division and OCA allege that RBG did not disclose in its report, or require accrual in the financial statements, a liability for the unasserted claims identified in the attorney letter. The Division and OCA allege that RBG's report inaccurately represented that ESI's financial statements for the year ended December 31, 2000 were prepared in conformity with GAAP and that RBG's audit was performed in accordance with GAAS. The Division and OCA allege that ESI's financial statements were not in conformity with GAAP because no accrual was made for the misappropriations.
A hearing will be held before an Administrative Law Judge to determine whether the allegations in the Order are true, to provide Rubin and Lewis an opportunity to dispute these allegations, and to determine whether the Commission should censure or deny them, temporarily or permanently, the privilege of appearing or practicing before the Commission. The Commission directed that an administrative law judge shall issue an initial decision in this matter within 300 days from the date of service of the Order.
See also the Order in this matter