Ernst & Young agreed to pay fines totaling US $9.34 million to resolve charges that two of its partners maintained personal relationships with their contacts at their audit clients that were too close to maintain auditor impartiality and objectivity. In one action naming E&Y, Robert Brehl, Pamela Hartford and Michael T. Kamienski, the SEC charged that, between March 2012 and June 2014, Ms. Hartford, who at first was the engagement partner and then the coordinating partner on E&Y’s engagement with an unspecified public company that was an audit client, maintained a romantic relationship with Mr. Brehl, who at the time was the chief accounting officer at the client. However, during this time, said the SEC, E&Y represented that it was independent in connection with audit reports filed with the agency. However, “[a] reasonable investor with knowledge of all relevant facts and circumstances concerning Hartford’s personal relationship with Brehl would conclude that Hartford was not capable of exercising objective and impartial judgment with respect to the audits of the Issuer.” According to the SEC, Mr. Kamienski was the coordinating partner on E&Y’s engagement prior to Ms. Fulton’s appointment, and had a senior role with E&Y afterwards. The SEC claimed that from early June 2013 through June 2014, he “was aware of facts” that suggested the romantic relationship but did not perform a “reasonable inquiry” to follow up or forward his knowledge to a group within E&Y charged with ensuring the audit firm’s independence from its clients. To resolve this matter, E&Y agreed to pay a fine of US $4.366 million while Ms. Hartford and Mr. Brehl consented to pay fines of US $25,000 each. Ms. Hartford, Mr. Brehl and Mr. Kamienski also agreed to be suspended from practicing before the SEC as accountants with the right to apply for reinstatement. E&Y also agreed to pay a separate fine of US $4.975 million as a result of an “inappropriate close personal relationship” between Gregory Bednar, a former E&Y partner, and the former chief financial officer of another public company that also was an E&Y audit client. Here the SEC cited numerous personal interactions from 2012 through 2014, including events with families and large expenditures on sporting events and other items, that it claimed compromised the independence of E&Y and rendered false E&Y’s representations to the SEC regarding its independent relationship with its client. For example, said the SEC, “[d]uring the relevant period, Bednar and the CFO exchanges hundreds of personal texts, emails and voicemails that did not include meaningful business-related discussions.” To resolve charges also brought against him personally, Mr. Bednar agreed to pay a fine of US $45,000 and likewise consented to be suspended from practicing before the SEC with a right to be reinstated after three years.
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Audit Firm Agrees to Two Fines Totaling $9.3 Million for Two Partners’ Cozy Relationship With Audit Client Contacts
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