SEC Charges Las Vegas-Based Accountant for Issuing False Audit Reports
FOR IMMEDIATE RELEASE
Washington, D.C., Aug. 27, 2009 — The Securities and Exchange Commission today charged a Las Vegas-based accountant and his auditing firm with securities fraud for issuing false audit reports that failed to comply with Public Company Accounting Oversight Board (PCAOB) standards and were often the product of high school graduates hired with little to no education or experience in accounting or auditing.
The SEC alleges that Michael J. Moore and his firm Moore & Associates Chartered (M&A) issued unqualified audit reports with deficient documentation after untrained employees conducted few if any auditing procedures on the financial statements of their clients. The PCAOB has separately taken disciplinary action against Moore and M&A, who have agreed to settle both the SEC and the PCAOB cases without admitting or denying the allegations.
"Moore and M&A falsely stated that their audits were conducted in accordance with PCAOB standards when in fact their audits were so deficient that they amounted to no audits at all," said Rosalind Tyson, Director of the SEC's Los Angeles Regional Office. "Even when there were red flags that a client's financial statements were materially misstated, the firm did not perform any meaningful audit procedures."
According to the SEC's complaint, filed in U.S. District Court for the District of Nevada, Moore and M&A issued audit reports for more than 300 clients who consist of primarily shell or developmental stage companies with public stock quoted on the OTCBB or the Pink Sheets. The SEC alleges that Moore and M&A violated numerous auditing standards, including a failure to hire employees with adequate technical training and proficiency. According to the SEC's complaint, they got little to no training on the job either. One employee described the training she received when hired in 2006 as "defunct" and stated that in January 2008 an outside auditor sat with her for a week "and taught (her) about the auditing process" and "how to verify what is in the financial statements and do (her) job." Another employee also testified that she received no formal training and instead observed other employees, saying that she "sort of watched what they did and asked questions."
The SEC further alleges that Moore and M&A did not adequately plan and supervise the audits, failed to exercise due professional care, and did not obtain sufficient competent evidence. Despite the audit failures, M&A issued and Moore signed audit reports falsely stating that the audits were conducted in accordance with PCAOB Standards. By issuing and signing these false audit reports, Moore and M&A violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Regulation S-X Rule 2-02(b)(1).
The SEC's complaint also alleges that Moore and M&A violated Sections 10A(a)(1) and10A(b)(1) of the Exchange Act by failing to include audit procedures designed to detect and report likely illegal acts. The SEC further alleges that Moore and M&A improperly modified audit documentation in violation of Regulation S-X Rule 2-06.
In the SEC's enforcement action, Moore and M&A agreed to disgorge $179,750 plus prejudgment interest of $10,151.59, and Moore separately agreed to pay a $130,000 penalty. Moore and M&A also agreed to be permanently enjoined from future securities violations, and to be suspended from appearing or practicing before the Commission as accountants.
The PCAOB simultaneously instituted and settled disciplinary proceedings to bar Moore from being an associated person of a registered public accounting firm and revoke M&A's registration with the PCAOB. In its order, the PCAOB found that Moore and M&A violated Section 10(b) of the Exchange Act and Rule 10b-5 by issuing audit reports that falsely represented that the audit had been conducted in accordance with PCAOB standards. The PCAOB's order also found that M&A violated the PCAOB's quality control standards and that Moore substantially contributed to those failings. In addition, the PCAOB's order found that both Moore and M&A violated PCAOB standards and failed to cooperate with its investigation.
The SEC appreciates the assistance of the PCAOB in this matter.
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For more information on this enforcement action, contact:
Senior Assistant Regional Director, SEC Los Angeles Regional Office