Accounting firm Ernst & Young will pay $9.3 million to settle charges that two of its former auditors got "too close to clients on a personal level" and broke rules aimed at ensuring reviews were impartial, the U.S. Securities and Exchange Commission said on Monday.
The agency said the two former Ernst & Young partners also settled SEC charges that they lacked independence when auditing the clients' companies. Another partner and a client's chief accounting officer also settled SEC charges that they engaged in unprofessional conduct. All agreed to penalties and suspensions from doing any accounting work relating to SEC matters.
Neither Ernst & Young nor the individuals charged admitted or denied any wrongdoing in settling the charges, the SEC said.
The SEC said these cases marked its first enforcement actions against auditors who failed to remain independent due to "close personal relationships" with clients' employees. It said that in both situations, Ernst & Young ignored red flags that signaled their partners' inappropriate conduct.
Auditors are independent, outside accountants who examine a public company's financial statements and certify their accuracy. The process, required by the SEC, is designed to give investors assurances beyond the company that they can rely on the statements.
The SEC said it found that Gregory Bednar, a former senior partner on the audit team for a New York-based public company, had "maintained an improperly close friendship" with its chief financial officer. The SEC did not name the company.
The SEC said that Pamela Hartford, a former partner on another audit team, had been "romantically involved" with Robert Brehl, a different client's former chief accounting officer, between 2013 and 2014. The SEC did not identify Brehl's former employer.
It said a third former partner, Michael Kamienski, had information that should have caused him to inquire about a possible romantic relationship between Hartford and Brehl. Kamienski's lawyer declined to comment.
Lawyers for the other individuals did not return calls for comment.
The SEC said Ernst & Young, during the periods of the relationships, violated SEC rules by representing that it was independent in auditing the companies when it was not.
"The individuals at the center of these matters violated multiple EY policies, hid their conduct and behaved in a way that was antithetical to EY's Global Code of Conduct, culture, values, policies, and training," Ernst & Young spokeswoman Amy Call Well said in a statement.