SEC charges KPMG auditors at failed Nebraska bank

WASHINGTON Wed Jan 9, 2013 12:29pm EST

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.

Credit: Reuters/Jonathan Ernst

WASHINGTON (Reuters) - Regulators filed civil charges against two auditors at accounting giant KPMG, marking the first time the federal government has charged auditors in connection with their roles during the 2007-2009 financial crisis.

The Securities and Exchange Commission is seeking to censure KPMG partner John Aesoph and senior manager Darren Bennett, alleging they failed to properly scrutinize the books of Nebraska-based TierOne Bank, which collapsed under the weight of loan losses during the financial crisis.

As part of Wednesday's action, the SEC plans to ask an administrative judge to consider barring the two auditors, either temporarily or permanently, from practicing before the commission.

Lawyers for the two men could not be reached immediately for comment.

Tim Connolly, a KPMG spokesman, said: "Our partner and senior manager look forward to presenting the facts in support of the work that was performed under the circumstances at TierOne."

The SEC case against the auditors comes less than six months after the agency charged three TierOne Bank executives with understating losses during the crisis.

Two of the three have settled the case and a third was still fighting the charges.

In the latest matter, the SEC alleged Aesoph and Bennett did not properly review TierOne's allowance for loan and lease losses.

The SEC said they did not get enough evidence to support estimates by management of fair value for the collateral tied to the risky loans. They also failed to heed "numerous red flags" before issuing an "unqualified" audit opinion of the bank's 2008 financial statements and internal controls over financial reporting.

"Aesoph and Bennett merely rubber-stamped TierOne's collateral value estimates and ignored the red flags surrounding the bank's troubled real estate loans," said Robert Khuzami, head of the SEC's enforcement division.

"Auditors must adhere to professional auditing standards and exercise due diligence rather than merely relying on management's representations."

(Reporting by Sarah N. Lynch; editing by John Wallace and Jeffrey Benkoe)

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