A senior accountant at PNC Financial Services Group Inc. and a former Ernst and Young partner have agreed to settle Securities and Exchange Commission charges that they played a role in PNC filing reports that inflated the company’s 2001 earnings.
Both men settled without admitting or denying the SEC's claims and agreed to cease and desist from future violations. No fines were levied against either.
According to the SEC, Pittsburgh-based PNC improperly accounted for special-purpose entities created by New York insurer American International Group Inc. to remove some loans and venture-capital investments from PNC's books. The SEC said that PNC's handling of the off-the-books deals violated generally accepted accounting principles.
The SEC said that the former head of PNC’s accounting policy department, Thomas Garbe, should have asked more questions about how the deals were structured. According to published reports, Garbe is still with the company.
The SEC barred Michael Joseph, a former partner in the national office E&Y from public-company accounting for a minimum of three years for his alleged role in the transaction. According to the SEC, Joseph helped to market an AIG accounting product that used special-purpose entities, advised PNC on it, and worked with the E&Y team that audited PNC's books, in violation of auditor-independence rules. Joseph reportedly left the Big Four firm in 2005.
The shady accounting led PNC to restate its 2001 earnings downward by $155 million, and later pay $115 million in federal fines.
