SEC Sanctions Florida-Based Auditor for Circumventing Rules

The Securities and Exchange Commission today sanctioned a Florida-based auditor for violating federal laws and regulations requiring lead audit partners to periodically rotate off their audit engagements with a publicly traded company in order to preserve the integrity of the financial reporting process. 

The lead partner primarily responsible for the audit of a public company is prohibited from performing lead audit partner services for the same issuer for more than five consecutive fiscal years.  The SEC finds that Elliot Berman attempted to circumvent this auditor rotation requirement.  For the audit of a company that he conducted for the previous five years, Berman installed as lead audit partner an employee at his firm who was not a certified public accountant nor otherwise qualified to lead such an audit.  Berman improperly continued to perform many of the lead audit partner functions for that audit. 

Berman and his firm Berman & Company, located in Boca Raton, agreed to settle the SEC’s charges.  Berman must pay a $15,000 penalty and is suspended for at least one year from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.

The case is part of the SEC’s ongoing Operation Broken Gate designed to identify auditors who disregard their gatekeeper roles in violating professional standards and thereby increasing the risk of undetected fraud in financial statements that are not being properly audited.

“When investors receive an audited financial statement, they have a right to expect that the audit was performed by a qualified and independent auditor,” said Paul Levenson, Director of the SEC’s Boston Regional Office.  “Berman attempted to subvert the independence rules by concocting a sham rotation and naming an unqualified employee of the firm to serve as token lead audit partner while he continued to pull the strings.” 

The SEC’s order instituting a settled administrative proceeding finds that Berman and his firm engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Securities Exchange Act of 1934 as well as Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.  The order finds that they violated Section 10A(j) of the Exchange Act and caused their client’s violations of Section 13(a) of the Exchange Act and Rule 13a-1.  The order further finds that Berman & Company violated and Berman willfully aided and abetted Rule 2-02 of Regulation S-X.  Without admitting or denying the SEC’s findings, Berman and his firm consented to the order, which censures Berman & Company for its misconduct.

The SEC’s investigation was conducted by Patrick Noone and Marc Jones, and the case was supervised by Kevin Currid.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.