“These opinions were false and misleading,” the SEC said in a statement.
“Ernst & Young has agreed to pay $8.5 million to settle civil charges that it violated accounting rules in connection with a fraud at Bally Total Fitness Holding Corp, the U.S. Securities and Exchange Commission said Thursday.
The SEC accused the accounting firm of issuing unqualified audit opinions that said that Bally’s 2001 and 2003 financial statements conformed with U.S. accounting rules.
Six of the accounting firm’s current and former partners also agreed to settle SEC accounting violation charges as part of this investigation, the SEC said.
In settling the allegations, Ernst & Young and the former and current partners did not admit to any wrongdoing, the SEC said.
“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,” Ernst & Young said.”
Three of the partners were members of EY’s leadership team/national office, giving advice, guidance, and making decisions about accounting standards on behalf of engagement teams nationwide.
Did Mr. Fletchall get off with a slap on the wrist given his AICPA leadership position, AICPA PAC contributions and significant campaign contributions to Senator Christopher Dodd? Mr. Fletchall is used to telling the SEC what it should do. Quite used to it.
EY can put an old case behind them… Yes, of course, since it’s December of 2009 and it’s taken the SEC six years to resolve a case from 2001-2003. No wonder the firms’ answer to any settlement or disciplinary proceeding is always, “that’s in the past.”
EY had independence issues recently and was supended from taking on new audit clients for six months. And even more recently they were fined millions by the SEC for allowing a significant vendor relationship with an executive who also served on the Boards of three of their audit clients, including their Audit Committees. How many strikes does a firm get? Why no strong statement, sanction or other disciplinary action from the PCAOB for the partners or the firm in relation to this case? Maybe because Mr. Fletchall was also a member of the PCAOB’s Standing Advisory Group.
Is Bally’s hidden in one of the EY inspection reports from this era? Not likely, since the issue occurred right at the dawn of the first inspections, post-Sarbanes-Oxley’s creation of the regulator.
More as this story develops.