E&Y settles Securities and Exchange Commision charges
The US watchdog Securities and Exchange Commission (SEC) has charged Ernst & Young (E&Y) and six of its current and former partners for their roles at a fitness business, for failing to know about fraudulent financial accounting and disclosures at fitness company Bally.
E&Y, which audited Chicago-based fitness centre business Bally Total Fitness Holding Corporation agreed to pay $8.5 million to settle the SEC's charges. E&Y had issued unqualified audit opinions stating that Bally’s 2001 to 2003 financial statements confirmed with GAAP, and its audit conformed with accepted auditing standards which the SEC said were “false and misleading” opinions.
Three current partners were charged: Randy G. Fletchall, the partner in charge of E&Y’s national office; Mark V Sever, national director of area professional practice; and Kenneth W Peterson, the professional practice director for the Lake Michigan Area office. Three former E&Y partners were also charged: Thomas D Vogelsinger, the area managing partner for E&Y’s Lake Michigan area through October 2003; William J Carpenter, the E&Y engagement partner for the 2003 audit; and John M. Kiss, the E&Y engagement partner for the 2001 and 2002 audits.
"It is deeply disconcerting that partners, even at the highest levels of E &Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits. This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence," said Robert Khuzami, director of the SEC’s Division of Enforcement.
All six charges were settled. In settling the allegations, Ernst & Young and the former and current partners did not admit to any wrongdoing. "These settlements allow us and several of our partners to put this matter behind us and resolve issues that arose more than five years ago," said Ernst & Young.
Bally’s formerCFO John W Dwyer and former controller Theodore P Noncek were also charged/ Dwyer and Noncek agreed to settle the SEC’s charges. Dwyer will pay $250,000 as part of the agreement.
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