by Bill Carlino
Chicago — Top-tier CPA and consulting firm Grant Thornton agreed to pay $1.5 million and implement a systemwide fraud-training program to settle charges of securities violations related to the firm’s audit of now-collapsed mortgage banker MCA Corp.
The seven-figure settlement stems from a 1998 audit of Southfield, Mich.-based MCA Corp., which had been charged by the SEC with civil fraud and lying to auditors in April 2002.
The financial watchdog said that the Detroit office of Grant Thornton and the Troy, Mich.-based CPA firm of Doeren Mayhew & Co. had jointly signed off on MCA’s financials with the knowledge that the reports contained “false and misleading statements.”
According to the SEC, Grant Thornton and Doeren Mayhew gave MCA a clean audit opinion, despite the fact that the company’s annual financial report ended Jan. 31, 1998, omitted millions of dollars of related-party payments. The regulator maintained that the payments allowed MCA to artificially inflate its results, but those payments were not disclosed.
A spokesman for Grant Thornton said, “This agreement is neither an admission nor a denial of guilt in this matter, but we do accept the sanctions in the settlement, recognize the need for accounting professionals to take greater responsibility for detecting fraud, and support the SEC in their mission to better protect investors.”
In addition, Grant Thornton was ordered to pay disgorgement and prejudgment interest in the amount of $59,749, while Doeren Mayhew was required to pay $115,127.
“The sanctions [in this settlement] should serve as reminders to audit firms that it is in their interest to take adequate care to ensure that their audits are properly staffed and performed,” said Stephen M. Cutler, director of the commission’s Division of Enforcement.
In a complaint filed in January, the regulator maintained that MCA used its 1998 financial statements in connection with a public offering of debentures.
At that time, the SEC claimed that Grant had “rented out its name and prestige to the audit work of a smaller firm without taking adequate care to ensure that the audit was properly staffed and performed.”
Investors subsequently lost millions in one of Michigan’s largest cases of securities fraud, while several of MCA’s former officers subsequently pleaded guilty to criminal charges.
Grant Thornton and Doeren Mayhew had jointly audited MCA from 1993 to 1998. Grant discontinued the practice of performing joint audits on SEC issuers roughly five years ago.
Along with the two audit firms, the SEC proceeding in January had charged Peter Behrens, 46, a partner in Grant Thornton’s Detroit office, and Doeren Mayhew directors Marvin Morris, 60, and Benedict Rybicki, 40.
As part of the settlement, Morris, Behrens and Rybicki cannot practice before the commission for five years, three years and one year, respectively.
Grant Thornton will also spend at least $1 million to institute a training program in fraud detection for its professional staff.
“As agreed, we will be investing more than $1 million to initiate a firm-wide fraud-detection training program for our audit professionals, which we believe is the first such initiative in the accounting profession,” said the firm. “We are happy that the settlement leaves no restriction on our ability to serve existing SEC and privately held clients, or take on new clients.”
The MCA settlement comes just months after a massive audit scandal at global dairy concern Parmalat — a company audited by GT’s Italy-based affiliate.
