CHICAGO (HedgeWorld.com)–The Commodity Futures Trading Commission filed a two-count administrative complaint against a certified public accountant, G. Victor Johnson, and the firm of Altschuler, Melvoin & Glasser LLP, in connection with financial audits that Johnson performed for a commodity pool operator.
According to the Sept. 30 complaint against Altschuler and Mr. Johnson, the latter was performing the audits of the books of the commodity pool operator, Melrose Asset Management Corp., Chicago, while its founder, Mr. Lofgren, was misappropriating money. Mr. Johnson, the complaint alleges, failed to exercise due professional care in conducting these audits, and Altschuler issued unqualified auditor’s reports representing that the pool’s financial statements were free from material misstatement, when such was not the case.
An administrative complaint institutes proceedings to determine whether allegations are true and, if so, what enforcement orders that the CFTC should issue. In the instant proceeding, the CFTC is considering an order that would assess a civil monetary penalty of up to the higher of US$120,000 or triple the monetary gain Mr. Johnson and Altschuler received from their breaches of standards and that would deny Mr. Johnson and Altschuler temporarily or permanently the privilege of appearing or practicing before the CFTC.
A spokesman for Altschuler declined to comment.
The CFTC’s complaint builds upon a previously filed (2002) anti-fraud action against Melrose and Lofgren (see Previous HedgeWorld Story).
In that earlier action the CFTC alleged that in 2000 and 2001, Mr. Lofgren had misappropriated at least US$1.4 million from the fund and used it to pay personal expenses and that he forged the signature of one of the pool participants on letters he created and dated May 10, 2002. This letter purported to confirm the pool participant’s withdrawal of capital from the pool.
The CFTC settled its action against Mr. Lofgren on Aug. 30, 2004, when Judge William J. Hibbler of the U.S. District Court for the Northern District of Illinois entered a consent order of permanent injunction against Lofgren and Melrose ordering payment of more than US$6.7 million.
CFTC action against auditors is neither commonplace nor entirely novel. Rosemary Hollinger, the CFTC’s regional counsel in Chicago, said Oct. 7 that the CFTC brings such an action roughly once every other year.
“We thought it was especially egregious because they [Altschuler] followed the suspicious transactions, yet failed to follow up as you would expect an accountant to do,” Ms Hollinger said.
She added that she couldn’t speak about any settlement negotiations in this matter, but that as a general rule such negotiations do take place within 21 days of the filing of an action.
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