April 27, 2005
Deloitte pays $50 million in SEC settlement over Adelphia audit
Deloitte & Touche LLP announced yesterday that it will pay a $50 million fine to settle Securities and Exchange Commission civil charges that it failed to prevent massive fraud at bankrupt cable company Adelphia Communications Corp.
And, just to add insult to injury, the SEC took issue with with Deloitte's press release regarding the settlement, in which Deloitte blamed Adelphia by saying the company and some executives "deliberately misled" Deloitte's auditors. Under terms of its settlement agreement with the SEC, Deloitte was required neither to admit nor deny the SEC's charges. Inasmuch as the Deloitte statement at least implied that Deloitte was denying liability, the SEC took the unusual step of forcing Deloitte to rescind the public statement (WSJ $). It's bad enough blowing the audits, but blowing the press release on the settlement really gets the SEC's blood boiling:
"Deloitte's characterization of the case is simply wrong. Deloitte was not deceived," said Mark K. Schonfeld, director of the SEC's Northeast Regional Office. "They didn't just miss red flags, they pulled the flag over their head and then claimed they couldn't see."
The SEC's Litigation Release over the settlement explains the problems with Deloitte's audit of Adelphia:
The Commission's complaint against Deloitte alleges that, during Deloitte's audit of Adelphia's financial statements for the year ended December 31, 2000, Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia and failed to implement audit procedures designed to identify material related party transactions or related party transactions otherwise requiring disclosure. Among other things, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 million, improperly netted related party receivables and payables between Adelphia and related parties, and failed to disclose the extent of related party transactions.
Finally, in what amounts to a settlement of a "slip and fall" case for an auditing firm these days, Deloitte agreed to pay $375,000 in a separate matter to settle SEC charges that it failed to uncover accounting fraud in its 1998 audit of the sports retailer, Just for Feet, which ended up filing bankruptcy shortly thereafter. As a part of that settlement, a couple of Deloitte partners on that audit agreed to bans of at least a year in practicing as an auditor before the SEC. Here is the SEC order instituting administrative proceedings in that matter.
Posted by Tom at April 27, 2005 5:08 AM |
Post a comment
Thanks for signing in, . Now you can comment. (sign out)(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)