As part of the Order, Grant Thornton undertakes to:
- pay $1.5 million as a penalty;
- require its entire professional staff to undergo fraud-detection training and provide at least $1 million to fund such training; and
- suspend certain joint audits with other auditing firms for a period of five years.
In addition, Grant Thornton is censured and required to pay disgorgement and prejudgment interest of $59,749.41.
Pursuant to the Order, Doeren Mayhew, which voluntarily discontinued conducting public audits as of March 19, 2003, undertakes not to accept new public company auditing engagements for six months. In addition, if Doeren Mayhew engages in audits of public companies after the expiration of six months, Doeren Mayhew undertakes to establish and implement certain policies and procedures specifically designed to improve the quality of its public company audit practice for a period of three years. Doeren Mayhew also is censured and required to pay disgorgement and prejudgment interest of $115,126.86.
Pursuant to the Order, Morris, Behrens and Rybicki are denied the privilege of appearing or practicing before the Commission for periods of five years, three years and one year, respectively, from the entry of the Order. Accordingly, by the entry of this Order, this matter is resolved as to all respondents in this proceeding.
"We are pleased to announce this settlement in which Grant Thornton and Doeren Mayhew have agreed to undertake significant firm-wide measures to address institutional failures alleged in this enforcement action. In addition, the sanctions in this settlement should serve as reminders to audit firms that it is in their interest to take adequate care to ensure that their audits are properly staffed and performed," said Stephen M. Cutler, Director of the Commission's Division of Enforcement.
"This settlement provides for significant relief that will not only act to deter and prevent future auditor misconduct, but also provides monetary payments that will be distributed to certain defrauded investors affected by the audit failure in this case. In addition, the settlement demonstrates our continuing resolve to hold individual auditing professionals accountable," said Timothy L. Warren, Associate Director of the Commission's Midwest Regional Office.
The Order finds that the Respondents caused and aided and abetted violations of the reporting provisions of the federal securities laws, violated or aided and abetted violations of Section 10A of the Exchange Act and engaged in improper professional conduct under Rule 102(e) of the Commission's Rules of Practice in connection with their audit of MCA Financial Corporation's financial statements for the fiscal year ended January 31, 1998. At the time, MCA was a mortgage banking company based in Southfield, Mich. Grant Thornton is a national accounting firm headquartered in Chicago, Ill. Doeren Mayhew is an accounting firm based in Troy, Mich. Grant Thornton and Doeren Mayhew jointly audited MCA's 1998 annual financial statements. Behrens, a 47-year-old resident of Troy, Mich., is a partner in the Detroit office of Grant Thornton. Morris, a 60-year-old resident of Grosse Pointe Park, Mich., and Rybicki, a 40-year-old resident of Grosse Pointe Park, Mich., are directors of Doeren Mayhew.
The Order further finds that:
- MCA violated the reporting provisions of the federal securities laws by filing materially false and misleading 1998 annual financial statements with the Commission and using those financial statements in connection with a public offering of debentures.
- MCA's 1998 annual financial statements were materially false and misleading because MCA utilized related party transactions to inflate and mischaracterize its income, assets and equity.
- Behrens and Morris were the engagement partners for the 1998 MCA audit. Rybicki was the engagement manager for that audit.
- During the audit, the respondents knew that MCA failed to disclose several million dollars of material, related party transactions in its 1998 annual financial statements.
- Despite this knowledge, Grant Thornton and Doeren Mayhew jointly issued a report containing an unqualified opinion on MCA's 1998 annual financial statements and consented to the inclusion of their report in MCA's debenture offering materials.
- The respondents failed to inform MCA's Board of Directors that MCA's 1998 annual financial statements did not disclose millions of dollars of material, related party transactions.
- The respondents did not adequately plan the 1998 MCA audit, did not act with sufficient skepticism in conducting the audit, and did not obtain enough evidence to support their conclusions and, thus, engaged in improper professional conduct.
