Among recent enforcement actions by the SEC were sanctions by the SEC imposed on an audit firm and four accountants for failed audits; the findings by an administrative law judge that three former brokers were guilty of churning and their supervisor at the time of failing to supervise them.
FINRA took action on a firm's misuse of escrow funds and fines a firm over failure to respond to red flags.
FINRA Fines Firm for Ignoring Red Flags
FINRA censured CFD Investments Inc., of Kokomo, Ind., and fined it $100,000 for failing to respond to red flags relating to a former registered representative. Had it responded and investigated the situation, it could have discovered that the representative had converted a trust's assets.
The firm was already aware that the representative was serving as both trustee and broker to the trust, a potential conflict of interest that allowed him to be the only one receiving statements — a perfect cover for any potential wrongdoing. He took advantage of the fact to hide his activities from the trust beneficiary and anyone else associated with the trust.
As soon as six months after purchase, the representative began to liquidate mutual funds held by the trust, and within about five years the accounts were essentially worthless — something the firm could have stopped, since it had access to the account activity. But it did nothing to investigate, despite numerous red flags, including the facts that the representative made very little money — in one year as little as $5,600 — from the firm during the time he was draining the trust, and that he also repeatedly violated firm procedures.
The firm neither admitted nor denied FINRA's findings, but consented to the sanctions.
Audit Firm, Four Accountants Sanctioned by SEC
New York-based audit firm Sherb & Co. LLP, its founder, two other partners and an audit manager were sanctioned by the SEC for their roles in the failed audits of three China-based companies publicly traded in the U.S.
The SEC found in an investigation that the firm and its auditors, far from conducting audits in accordance with U.S. standards, were so far off the mark that one of the companies they audited, China Sky One Medical Inc., has been charged by the agency with financial fraud.
The flawed audits involved China Sky One Medical, China Education Alliance Inc. and Wowjoint Holdings Ltd. Those responsible for the audits were Steven Sherb, the audit firm's founder; partners Christopher Valleau and Mark Mycio; and audit manager Steven Epstein. They four did not properly plan and execute the audits, nor did they get adequate documentation concerning sales, revenue or bank balances. In addition, they ignored red flags and failed to maintain complete audit work papers.
To settle the proceeding, the firm and the four auditors agreed to be barred from practicing as accountants on behalf of any publicly traded company or other entity regulated by the SEC; in addition, the firm agreed to pay a $75,000 penalty.
Brokers Churned, Supervisor Failed, Says Judge in SEC Case
