SEC charges five cos. for not having auditors review interim financials

The Securities and Exchange Commission has settled charges against five companies for not having independent auditors review their interim financials.

Regulation S-X requires public companies to have their quarterly reports, which are filed on Form 10-Q, include interim financial statements that have been reviewed by an independent external auditor.

Joe Ratterman of Bats Global Markets Inc., Nasdaq OMX Group Inc arrive for a meeting at the Securities and Exchange Commission in Washington, D.C., U.S., on Monday, May 10, 2010. The chief executive officers of the biggest U.S. stock markets were called to a meeting at the U.S.Securities and Exchange to discuss last week’s selloff in equities, according to four people familiar with the situation. Photographer: Joshua Roberts/Bloomberg

The five companies each filed at least one 10-Q with financial statements that had not been reviewed by an auditor, according to the SEC; all five agreed to settle the charges, and the commission assessed $250,000 in combined penalties on them.

This is the first time the SEC has charged companies with failing to comply with the Reg. S-X requirement.

“The commission’s reporting rules are designed to help ensure that investors are provided timely access to reliable interim financial information about public companies in quarterly reports,” said Anita Bandy, an associate director in the SEC’s Enforcement Division, in a statement. “Our data-driven investigative techniques led us to identify these companies, who had deprived investors of the benefit of the external auditor’s involvement by including financial statements in Forms 10-Q that had not been reviewed in accordance with Regulation S-X.”

Though the companies neither admitted nor denied the commission’s findings, they all agreed to a cease-and-desist order. The companies and their pane:

  • Cardiff Lexington Corp. (one 10-Q with unreviewed financial statements; penalty of $25,000);
  • Cool Technologies Inc. (three 10-Qs with unreviewed financial statements; penalty of $75,000);
  • Dasan Zhone Solutions Inc. (two 10-Qs with unreviewed financial statements; penalty of $50,000);
  • First Hartford Corp. (two 10-Qs with unreviewed financial statements; penalty of $50,000); and,
  • Infrax Systems Inc. (two 10-Qs with unreviewed financial statements; penalty of $50,000).

The SEC's investigation is ongoing.

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