SEC CHARGES CPA AND HIS CONSULTING FIRM WITH PARTICIPATING IN A PONZI SCHEME

The designation CPA (Certified Public Accountant) was once a venerated designation that meant that the bookwork handled by such a designate was accurate and that such work was according to established accounting standards. In the following case the SEC alleges that a CPA and his consulting firm helped to steer clients into a Ponzi scheme and mismanaged statements that kept the scheme ongoing. The case is an excerpt from the SEC website:

"SEC Charges John N. Irwin and Jacklin Associates, Inc. with Participating in Ponzi Scheme Orchestrated by Joseph S. Forte and Joseph S. Forte, LP
The Securities and Exchange Commission announced today that on July 11, 2011, it filed a settled civil action in the United States District Court in Philadelphia against John N. Irwin (“Irwin”), a certified public accountant, and his consulting firm, Jacklin Associates, Inc. (“Jacklin”). The Commission alleges that, from at least February 1995 through December 2008, Irwin and Jacklin participated in a multi-million dollar Ponzi scheme orchestrated and run by Joseph S. Forte (“Forte”) through his limited partnership Joseph S. Forte, LP (“Forte LP”). In December 2008, Forte confessed to federal authorities that, for over a decade, he had been operating a Ponzi scheme in which he fraudulently obtained approximately $50 million from roughly 80 investors through the sale of securities in the form of limited partnership interests in Forte LP. Subsequent investigation of Forte’s confession has revealed over 100 investors who collectively invested over $75 million. Forte and Forte LP solicited investors by making misrepresentations regarding, among other things, use of invested funds, investment returns, and investor account balances. On January 7, 2009, the Commission and the United States Commodities Futures Trading Commission filed civil actions against Forte and Forte LP and successfully sought emergency relief that, among other things, froze their assets and enjoined further illegal conduct. SEC v. Forte, et al., 09-CV-0063 (E.D. Pa.); CFTC v. Forte, 09-CV-0064 (E.D. Pa.). In parallel criminal proceedings, Forte pled guilty to charges of wire fraud, mail fraud, bank fraud and money laundering and was sentenced to 15 years in prison. U.S. v. Forte, 09-CR-304 (E.D. Pa.).

The Commission’s complaint against Irwin and Jacklin alleges that they participated in Forte’s scheme by soliciting investors for Forte LP. In doing so, Irwin relied exclusively on Forte’s misrepresentations about Forte LP’s stellar performance and, without performing any due diligence, passed along to investors through Jacklin materially false and misleading information about, among other things, Forte LP’s current value and growth, historical performance, rapid-trading strategy, and retention of an accountant. Irwin, through Jacklin, also performed back office and bookkeeping functions for Forte LP, including creating and issuing to investors false quarterly statements and tax documents prepared based on the false information provided by Forte. In communicating the fraudulent information to investors, Irwin disregarded red flags that should have alerted him that the information that he was passing on was false. Over the course of the fraud, Irwin, through Jacklin, received ill-gotten gains exceeding $5 million in purported fees and trading profits.

Irwin and Jacklin agreed to settle the Commission’s charges, without admitting or denying the allegations in the Commission’s complaint. Under the settlement, which is subject to the court’s approval, Irwin and Jacklin consented to a judgment permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders the defendants to pay disgorgement plus prejudgment interest, and permits the Commission to ask the court to impose civil penalties, the amounts of which will be determined at a later date. As part of the settlement, Irwin agreed to the entry of an order suspending him from appearing or practicing before the Commission as an accountant. "