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Consulting firm Deloitte & Touche L.L.P. on Wednesday agreed to pay more than $1 million to settle U.S. Securities and Exchange Commission charges that it violated auditor independence rules when its consulting affiliate maintained a business relationship with a trustee serving on the boards and audit committees of three funds it audited.
Deloitte said in a statement that it had self-reported the matter in 2012.
Also reaching a settlement in the matter were fund trustee Andrew C. Boynton, who was charged with related reporting violations, and the funds’ administrator, Denver-based ALPS Fund Services Inc., which was charged with causing related compliance violations, according to the SEC.
The SEC charged that New York-based Deloitte violated independence rules by failing to follow its own policies and conduct an independence consultation before entering into a new business relationship in 2006 with Mr. Boynton.
The agency also charged that Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the “independence-impairing” relationship had been established between Deloitte Consulting L.L.P. and Mr. Boynton, who was paid consulting fees for his external client work, the SEC said. Meanwhile, Deloitte represented in audit reports that it was independent of the three funds while Mr. Boynton simultaneously served on their boards and audit committees.
According to the settlement agreement, Deloitte agreed to pay disgorgement of audit fees totaling $497,000 plus $116,000 in prejudgment interest and a penalty of $500,000; Mr. Boynton agreed to pay disgorgement of $30,000 plus prejudgment interest of $5,000 and a penalty of $25,000; and ALPS agreed to pay a $45,000 penalty.
“The investing public depends on independent auditors like Deloitte to test the reliability of publicly reported financial statements, and they have front-line responsibility for ensuring their own independence,” said Stephen L. Cohen, associate director of the SEC’s enforcement division, in a statement. “But they are not alone in safeguarding the audit process, and the other fiduciaries charged in this case failed to fulfill their roles and preserve investor confidence.”
“As outlined in the July 1 SEC order, we self-identified an independence matter as a result of enhanced independence measures that we put in place. We self-reported this matter to the SEC in March 2012,” Deloitte said in a statement. “As an organization committed to safeguarding the capital markets, we strive for continuous improvement. We are pleased to resolve this matter and are confident that our enhanced policies, training and monitoring will maintain ongoing compliance.”
Mr. Boynton’s attorney, Kenneth R. Lench, a partner with Kirkland & Ellis L.L.P. in Washington, said, “Mr. Boynton is pleased to have this matter behind him.”
An ALPS spokesman could not immediately be reached for comment.
Legislation that is awaiting the Delaware governor's signature removes a means of significantly reducing sometimes-frivolous litigation filed against company directors & officers.