The order against CohnReznick finds that it engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC’s Rules of Practice, violated Rule 2-02(b)(1) of Regulation S-X, and was a cause of Sequential’s violations and Longfin’s violations of Section 13(a) of the Securities Exchange Act of 1934 and related rules thereunder. “CohnReznick’s deficient system and repeated failures to exercise due professional care at all levels, from the engagement team up through the firm’s national office, not only allowed but were a cause of both Sequential’s and Longfin’s disclosure violations.” “Auditors are critical gatekeepers that must employ a robust system of quality control to ensure faithful adherence to professional standards,” said Melissa Hodgman, Associate Director in the Division of Enforcement. The order also finds that in the third quarter of 2017, Wyss, Jackson, and Hilbert were confronted with indications that Sequential’s goodwill impairment test was not supported by sufficient evidence, but they still accepted Sequential’s conclusion that goodwill was not impaired even though appropriate additional audit procedures had not been performed. As to the Longfin audit, the order finds that CohnReznick and its national office failed to address known issues involving related party transactions, which were used by Longfin to fraudulently inflate its revenues.Ī second related order finds that on multiple occasions from year-end 2016 through the second quarter of 2017, Wyss accepted Sequential management’s assertions that goodwill was not impaired despite strong indicators of impairment. The order finds that CohnReznick’s deficient system of quality control led to failures to adhere to professional auditing standards. Despite CohnReznick’s national office partners and the firm’s own valuation specialists expressing concerns with Sequential’s conclusion, the firm failed to obtain sufficient evidence or conduct additional procedures. CohnReznick’s $1.9 million penalty will be returned to investors.Īccording to the SEC’s order, CohnReznick improperly accepted Sequential’s conclusion that its goodwill, an accounting term for the excess amount paid to acquire a company over its book value, was not impaired or reduced in value, in the third quarter of 2017. All respondents have agreed to settle charges and pay penalties. Hilbert with improper professional conduct for violating numerous professional standards in their third quarter 2017 interim review and 2017 annual audit of Sequential’s financial statements. The Commission also charged firm partners Stephen M. and Longfin Corp., previously were charged by the SEC for filing fraudulent financial statements prior to their bankruptcies and Nasdaq delisting. The two clients, Sequential Brands Group, Inc. The Securities and Exchange Commission today charged audit firm CohnReznick LLP with improper professional conduct on engagements for two clients in 2017.
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