U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19652 / April 12, 2006
Accounting and Auditing Enforcement Release No. 2410 / April 12, 2006
SEC Sues UK Accounting Firm PKF and Former Partner Anthony Mead in Connection with the AremisSoft Corporation Audit
PKF to Pay $2 Million Penalty and Disgorge Audit Fees
Mead Barred from SEC Practice, Fined $50,000
Second Partner Stuart Barnsdall Censured and Barred Two Years
SEC v. PKF and Anthony Frederick John Mead, Civil Action No. 06 CV 2853 (S.D.N.Y)
In the Matter of PKF, Anthony Frederick John Mead, FCA, and Stuart John Barnsdall, ACA, Exchange Act Release No. 34-53633 / April 12, 2006
Accounting and Auditing Enforcement Release No. 2409 / April 12, 2006
The Securities and Exchange Commission today announced that it filed a civil action in the United States District Court for the Southern District of New York and a related administrative proceeding against PKF, a United Kingdom based accounting firm, and its former partner Anthony Frederick John Mead ("Mead"), as a result of the failed year 2000 audit of AremisSoft Corporation. AremisSoft, a public company traded on the Nasdaq market, went bankrupt in March 2002 after announcing it was unable to substantiate approximately $90 million of revenues it reported in 2000. Subject to Court approval and without admitting or denying the allegations in the Complaint, PKF consents to disgorge $309,048 in fees plus interest and to pay a $2 million penalty which may be distributed to harmed investors pursuant to the Sarbanes-Oxley Act of 2002. Mead consents to a $50,000 penalty. In 2005, PKF converted to PKF (UK) LLP, a limited liability partnership.
The Complaint charges that PKF became aware of information during the 2000 AremisSoft audit indicating that illegal acts had or may have occurred but did not bring that information to the attention of AremisSoft's management, board of directors, or audit committee and that Mead failed to design appropriate audit procedures to determine whether AremisSoft senior management had committed fraud, violations of Section 10A of the Securities Exchange Act of 1934 ("Exchange Act").
The Commission also instituted and simultaneously settled combined administrative and Rule 102(e) proceedings against PKF, Mead, and Stuart John Barnsdall ("Barnsdall"), concurring partner on the 2000 AremisSoft audit. PKF, Mead, and Barnsdall settled without admitting or denying the findings in the Commission's order. The Commission found PKF and Mead engaged in highly unreasonable conduct in connection with the audit of AremisSoft's 2000 financial statements that resulted in repeated violations of applicable professional standards in circumstances which each knew or should have known warranted heightened scrutiny. It found Barnsdall engaged in unreasonable conduct that resulted in violations of applicable professional standards. According to the Commission's order:
The order finds that through these actions, PKF willfully violated Section 10A of the Exchange Act and was a cause of AremisSoft's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13b2-1 thereunder; and that Mead willfully violated Section 10A(a) of the Exchange Act and was a cause of AremisSoft's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13b2-1 thereunder. PKF and Mead each consented to the order that they cease and desist from committing and/or causing the violations charged as well as any future violations of these provisions.
As part of the settlement, PKF agreed to disgorge $309,048 in audit fees plus pre-judgment interest and consented to a censure and an undertaking not to accept any audit engagements for new Commission registrant clients for one year. Mead consented to a censure and permanent bar from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice. Barnsdall consented to a censure and two year bar from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e).
The Commission acknowledges the assistance provided in this matter by the United Kingdom Financial Services Authority.