The Securities and Exchange has censured Ernst & Young, ordering the Big Four firm to pay $1.6 million to settle charges of compromising its independence and contributing to faulty accounting by a client in 2001.As part of the settlement, E&Y neither admitted nor denied the agency’s allegations, made in connection with the firm’s audit work for Pittsburgh-based regional bank PNC Financial Services Group.

E&Y first confirmed that the SEC was investigating its work for PNC in late 2004, when the agency questioned a financial product that the firm was hired to create for PNC by insurer American International Group Inc. At the time, the SEC said that the financing vehicle allowed PNC to move $762 million in bad loans and investments off its balance sheet in 2001.

Around that same time, AIG agreed to pay more than $46 million to settle SEC charges related to the arrangement, and another $80 million to settle a criminal complaint by the Justice Department related to AIG’s PNC work. PNC paid $115 million to settle similar allegations made by the Justice Department in 2003.

In announcing the censure, the SEC alleged that E&Y auditors failed to make an independent review of PNC's accounting, separate from the accounting firm's advice to AIG when it was helping develop the product, and that as a result of faulty accounting for the transactions, PNC was forced to restate nearly $155 million in earnings.

Separately, the Canadian unit of accounting firm Deloitte & Touche was ordered to pay $50 million last week to settle an investor lawsuit over its audit of Canadian waste-management company Philip Services Corp.

Ontario, Canada-based Philip declared bankruptcy in 1999 after saying that it would restate financial results for three years due to improper copper trading. Investors sued the accounting firm, saying that Deloitte failed to disclose that Philip’s financial statements didn't comply with U.S. or Canadian accounting principles. Due to jurisdictional questions, the case floated between U.S. and Canadian courts for nearly four years.

Former directors and officers of Philips, as well as by firms that underwrote the company’s stock offering in the United States will pay out nearly another $30 million to shareholders as part of the same deal.

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