In a divided decision, the SEC has decided that suspending Ernst & Young auditor Wendy McNeeley from Commission practice for half a year for her conduct as manager of the audit of investment adviser AA Investors Management LLC and a related fund is appropriate. According to the agency, McNeeley and her engagement partner Gerard Oprin did not apply due professional care when assessing a $1.92 million related-party “tax loan” from client accounts to alleged fraudster John Orecchio, who co-owns AA Capital. She is also accused of choosing not to investigate further even after she encountered a number of red flags over a material transaction involving a related party.
The SEC filed its administrative proceedings against her and Oprin for not conducting the 2004 audit of AA Capital Equity Fund LLP and AA Capital, per generally accepted auditing standards. This alleged misconduct, contends the Commission, resulted in Ernst & Young putting out audit reports that were not properly qualified yet came with disclosures noting that they conformed to general accounting principles. McNeeley and Oprin are accused of not getting enough “competent evidential matter” or exercising the professional care required to their evaluation and disclosure of the loan to Orecchio. Instead, they allegedly depended on information from AA Capital’s chief financial officer that hadn’t been substantiated. Oprin was also accused of not properly supervising the audit.
While an administrative law judge would go on to dismiss the allegations facing Oprin, McNeeley was barred from appearing as an SEC accountant for a year. She appealed.
Now, the SEC is saying a six month-suspension is appropriate for McNeeley’s misconduct. (its Enforcement Division had sought a three-year suspension against her.) The Commission found that there were certain specific under these circumstances, including McNeeley’s inexperience and youth and the fact that her supervisor wasn’t in full compliance with his own auditing duties, that warranted she be given a sanction that was “more measured.”
CPA Suspended for Six Months Over Role in Flawed 2004 Audit, BNA/Bloomberg, December 18, 2012
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SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012
FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, December 10, 2012
GAO Says Most Financial Regulators Don’t Have the Procedures/Policies to Coordinate Dodd-Frank Rules, Institutional Investor Securities Blog, December 24, 2012