Ernst & Young settles charges that two ex-auditors got 'too close' to clients

Reuters

Published Sep 19, 2016 01:06PM ET

Ernst & Young settles charges that two ex-auditors got 'too close' to clients

By Suzanne Barlyn

(Reuters) - Accounting firm Ernst & Young will pay $9.3 million to settle charges that two of its former auditors got "too close to clients on a personal level" and broke rules aimed at ensuring reviews were impartial, the U.S. Securities and Exchange Commission said on Monday.

Three former Ernst & Young partners and a client's former chief accounting officer also settled SEC charges, agreeing to various penalties and suspensions, the agency said.

SEC investigations found that Gregory Bednar, a former senior partner on the audit team for a New York-based public company, had "maintained an improperly close friendship" with its chief financial officer, the agency said in a statement.

Pamela Hartford, a second former partner on another audit team, had been "romantically involved" with Robert Brehl, a different client's chief accounting officer, the SEC said.

A third former partner, Michael Kamienski, knew of facts that should have caused him to inquire about a possible romantic relationship between Hartford and Brehl, but did nothing, the SEC said.

Lawyers for the individuals were not immediately available for comment.

The cases mark the SEC's first enforcement actions against auditors who failed to remain independent due to "close personal relationships" with clients' employees, the agency said. It said that in both situations, Ernst & Young ignored red flags that signaled conduct their partners' inappropriate conduct.

Auditors are independent, outside accountants who examine a public company's financial statements and certify their accuracy. The process, required by the SEC, is designed to give investors additional assurances, beyond the company itself, that they can rely on the statements.

"Independent auditors serve as critically important gatekeepers," said SEC enforcement chief Andrew Ceresney in a call with reporters on Monday.

Neither Ernst & Young, nor the individuals charged, admitted or denied the SEC's charges, the agency said.

Those involved in the misconduct have been "separated" from Ernst & Young, company spokeswoman Amy Call Well said in a statement.

"The individuals at the center of these matters violated multiple EY policies, hid their conduct and behaved in a way that was antithetical to EY’s Global Code of Conduct, culture, values, policies, and training," the statement said. "The decisions they made betrayed the trust placed in them."