WASHINGTON (Legal Newsline) - The Securities and Exchange Commission has announced Ernst & Young, one of the major public accounting firms in the United States, will pay $9.3 million after allegations that two of its audit partners violated SEC impartiality rules because they got too close to its clients.
According to the SEC, Gregory S. Bednar caused auditor independence failures between January 2012 and March 2015 because he became involved in a personal relationship with a client. Ernst & Young had purportedly tasked Bednar with improving its relationship with a New York-based client.
Bednar and the company’s CFO allegedly stayed overnight at each other’s homes on multiple occasions and exchanged text messages and emails that were not work related. The SEC alleges that select Ernst &Young executives were aware of the relationship but did nothing to solve the situation.
In a separate instance, Pamela Hartford allegedly caused auditor independence failures from March 2012 to June 2014 when she had a romantic relationship with financial executive Robert Brehl while assigned to the audit team for his company. Ernst & Young partner Michael Kamienski purportedly became aware of the situation, but also did nothing.
“These are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.
“Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors.”