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WASHINGTON--Two executives, one at Pittsburgh-based PNC Financial Corp. and another at PNC's former auditing firm, have reached settlements with the Securities and Exchange Commission in connection with financial transactions between PNC and units of American International Group Inc.
In 2004, AIG agreed to pay $126 million in penalties and disgorgement payments to the Department of Justice and the SEC to settle charges over certain financial transactions among AIG units, PNC and Plainfield, Ind.-based Brightpoint Inc., a mobile telephone distributor. PNC consented to a cease-and-desist order in 2002 but was not assessed any fines or monetary penalties in connection with the matter, according to the company.
Thomas F. Garbe, who was the head of PNC's accounting policy department in 2001, was "a cause of violations and recordkeeping provisions of the federal securities laws" by PNC, the SEC said in a statement on Monday. According to the SEC, Mr. Garbe received information that "should have prompted him to inquire further" whether the AIG transactions were proper. Mr. Garbe agreed to cease and desist from future violations without admitting the SEC's findings, according to the SEC.
The SEC also announced a settlement with Michael S. Joseph, who in 2001 was a partner in the national office of New York-based Ernst & Young L.L.P. The SEC said during that year, Mr. Joseph "helped develop and market an accounting product" for AIG and also worked with an Ernst & Young audit team to advise audit client PNC on the accounting treatment for a version of that product that PNC purchased.
Mr. Joseph should have known that PNC's accounting for the product, which involved a special purpose entity, "did not conform with generally accepted accounting principles and would result in materially misleading filings by PNC," said the SEC.
The SEC also said that by advising PNC in connection with Ernst & Young's work as a PNC auditor on the appropriateness of accounting for the product he had helped AIG develop and market, Mr. Joseph "compromised his and his firm's auditor independence," which are required by generally accepted auditing standards and the SEC.
Under the order issued by the commission, Mr. Joseph is barred from appearing or practicing before the commission, with a right to apply for reinstatement after three years. Mr. Joseph also agreed to cease and desist from future violations without admitting the SEC's findings, according to the SEC.
An Ernst & Young spokesman could not be reached for comment as to whether Mr. Joseph still works at the firm.
The SEC said its investigation of the matter is continuing.