SEC Suspends NYC Audit Firm for Failing to Spot Fraud
The Securities and Exchange Commission has suspended EFP Rotenberg LLP and an accountant at the firm for failing to detect fraud in the audit of a public company client, ContinuityX Solutions.
As part of the settlement, the firm agreed to pay a $100,000 penalty, while the accountant, Nicholas Bottini, agreed to pay a $25,000 penalty, the SEC said Friday. Bottini has been permanently suspended from appearing and practicing before the SEC as an accountant, barring him from participating in financial reporting and audits of publicly traded companies. The New York-based firm has been suspended for one year and can only resume public company audits next year if an independent consultant certifies it has fixed the causes behind its failure to detect to the fraud.
The failed audit involved ContinuityX Solutions, a public company based in Metamora, Ill., which claimed to sell Internet services to businesses. The SEC has since charged ContinuityX’s executives alleging it engineered a scheme to inflate the company’s revenue through fraudulent sales.
The SEC said EFP Rotenberg and Bottini failed to perform enough audit procedures to uncover the fraud in ContinuityX’s financial statements. The firm and the accountant also didn’t get enough evidence about revenue recognition and accounts receivable to support its audits, according to the SEC, nor did it identify related-party transactions, investigate claims from company management that contradicted evidence found during the audit, perform procedures to resolve and document those inconsistencies, or exercise due professional care.
“Auditors are supposed to act as gatekeepers to protect the integrity of our markets, but EFP Rotenberg and Bottini failed to live up to their professional obligations,” said David Glockner, director of the SEC’s Chicago Regional Office, in a statement.
EFP Rotenberg issued a statement in response to the settlement: “The ContinuityX audit and related issues covered in the SEC settlement with EFP Rotenberg LLP took place in 2012. Nick Bottini, the engagement partner overseeing the ContinuityX audit, was dismissed from the firm in March of 2014. The firm has cooperated fully with the SEC during the process and we are pleased to reach this agreement. Now that the settlement is behind us, we will continue to focus on meeting the needs of our clients and the communities we serve.”
Both EFP Rotenberg and Bottini agreed to cease and desist from violating the securities laws without admitting or denying the SEC’s findings.