CPA, ACCOUNTING FIRM TO PAY $100,000 PENALTY FOR IMPROPER AUDITS OF REGULATED COMMODITY FUTURES FIRM

FROM:  COMMODITY FUTURES TRADING COMMISSION 

April 28, 2014

Federal Court Orders Illinois CPA Michael Tunney and His Accounting Firm, Tunney & Associates, P.C., to Pay a $100,000 Penalty for Improper Audits of a Commodity Futures Firm

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Consent Order against Tunney & Associates, P.C. (T&A), an accounting firm with offices in Hammond, Indiana and Orland Park, Illinois, and Michael Tunney, its sole owner and a certified public accountant (CPA) licensed in Illinois and Indiana, requiring T&A and Tunney jointly and severally to pay a $100,000 civil monetary penalty for violating CFTC Regulations when conducting audits for The Linn Group (TLG), a CFTC-registered Futures Commission Merchant (FCM).

The Order, entered on April 28, 2014, by Judge Sharon Johnson Coleman of the U.S. District Court, Northern District of Illinois, also permanently prohibits T&A and Tunney from practicing or appearing before the CFTC and from violating the provisions of the CFTC’s Regulations related to independent auditors, as charged.

The Order stems from a CFTC Complaint filed April 18, 2013, that charged T&A and Tunney with conducting year-end audits of TLG for 2007 through 2011 in violation of Generally Accepted Auditing Standards (GAAS) and CFTC Regulations and failing to report material inadequacies to the CFTC when required to do so (see CFTC Press Release 6571-13).

The Order finds that T&A and Tunney did not have experience auditing FCMs or any entity that held customer segregated accounts, were not qualified to conduct an FCM audit, and that Tunney lacked sufficient understanding of the applicable Commodity Exchange Act or CFTC regulatory provisions prior to accepting any of the audit engagements. The Order also finds that there was no planning for the auditing of TLG, and the audits failed to include appropriate tests of TLG’s accounting system, internal accounting controls, and procedures for safeguarding customer and firm assets.

The CFTC appreciates the assistance of the Division of Swap Dealer and Intermediary Oversight. The CFTC also appreciates the assistance of the National Futures Association.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.

SEC BRINGS ENFORCEMENT ACTION AGAINST SHANGHAI-BASED DELOITTE TOUCHE TOHMATSU CPA LTD.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 9, 2012 — The Securities and Exchange Commission today announced an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for its refusal to provide the agency with audit work papers related to a China-based company under investigation for potential accounting fraud against U.S. investors.

According to the SEC’s order instituting administrative proceedings against D&T Shanghai, the agency has been making extensive efforts for more than two years to obtain documents related to the firm’s work for the company, which issues U.S. securities registered with the SEC. The firm is charged with violating the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide audit work papers concerning U.S. issuers to the SEC upon request. D&T Shanghai has nonetheless failed to provide the documents, citing Chinese law as the reason for its refusal.

“As a voluntarily registered U.S. public accounting firm, D&T Shanghai cannot benefit from the financial and reputational rewards that come with auditing U.S. issuers without also meeting its U.S. legal obligations,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.  “Foreign firms auditing U.S. issuers should not be permitted to shield themselves from regulatory scrutiny to the detriment of U.S. investors.”
Scott Friestad, Associate Director of the SEC’s Division of Enforcement, added, “Without access to work papers of foreign public accounting firms, our investigators are unable to test the quality of the underlying audits and fulfill our responsibilities to investors.”

In a separate matter last year, the SEC filed a subpoena enforcement action against D&T Shanghai in federal court after the firm failed to produce documents in response to a subpoena related to an SEC investigation into possible fraud by one of its longtime clients, Longtop Financial Technologies Limited. The SEC later filed charges against Longtop for alleged reporting failures.

According to the SEC’s order in this latest enforcement action, D&T Shanghai is a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB). In April 2010, SEC staff began seeking D&T Shanghai’s audit work papers related to its independent audit work for the client involved in an SEC investigation. The SEC served Deloitte LLP, the U.S. member firm, with a subpoena requesting various related documents. Counsel for Deloitte LLP informed the staff that the U.S. firm did not perform any audit work for the client and therefore did not possess the documents related to the subpoena.

According to the SEC’s order, in the SEC staff’s continuing quest for the audit work papers in D&T Shanghai’s possession, they were later informed by counsel for Deloitte’s global firm that the agency’s request for audit work papers had been specifically communicated to D&T Shanghai. Subsequently, the staff served D&T Shanghai with a request through Deloitte LLP for the audit work papers pursuant to Section 106 of the Sarbanes-Oxley Act. D&T Shanghai would not produce the relevant audit work papers because of its interpretation that it is prevented from doing so by Chinese law. SEC staff also has sought to obtain the relevant audit work papers through international sharing mechanisms, yet these efforts have been unsuccessful.

This is the first time the Commission has brought an enforcement action against a foreign audit firm failing to comply with a Section 106 request.

In the SEC’s order, the Enforcement Division alleges that D&T Shanghai willfully violated the Sarbanes-Oxley Act and the Securities Exchange Act of 1934 by failing to provide the SEC with the audit work papers. The administrative proceeding will be assigned to an Administrative Law Judge at the agency. The judge would determine the appropriate remedial sanctions if the judge finds in favor of the SEC staff.