* Two auditors at KPMG face civil charges over bank audit
* Nebraska's TierOne Bank was inadequately reviewed-SEC
* KPMG says both auditors are still employed by firm
By Sarah N. Lynch
WASHINGTON, Jan 9 U.S. regulators on Wednesday
accused a partner and a manager at accounting firm KPMG
of failing to properly audit the books of a failed
Nebraska bank, the first time auditors have faced federal
securities charges over their roles during the 2007-2009
The Securities and Exchange Commission is seeking to censure
KPMG partner John Aesoph, 40, and senior manager Darren Bennett,
35, alleging they failed to properly scrutinize the books of
Nebraska-based TierOne Bank. The institution 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
Neither Aesoph nor Bennett could be reached, and lawyers for
the two men did not return calls or emails seeking comment.
Tim Connolly, a KPMG spokesman, said both men remained
employed with KPMG.
"Our partner and senior manager look forward to presenting
the facts in support of the work that was performed under the
circumstances at TierOne," Connolly said.
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 is still
fighting the charges.
In the latest matter, the SEC alleged Aesoph and Bennett did
not properly review TierOne's loan and lease losses allowance
and relied on "stale appraisals" and management's
"uncorroborated representations" despite evidence that estimates
were inconsistent with independent market data.
"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, in a statement.
FEW PUBLIC GOVERNMENT ACTIONS
Auditors have been criticized for their roles in reviewing
company financial statements leading up to the financial crisis,
but few public cases have been brought by the government.
The New York state attorney general is locked in a legal
battle with Ernst & Young over its auditing of Lehman
Brothers Holdings, but the state hit a stumbling block last
month, when a New York state judge ruled the attorney general
has no authority to claim $150 million in fees the auditor
earned from the work it performed.
The Federal Deposit Insurance Corporation also sued
PricewaterhouseCoopers last fall and accused the firm of failing
to detect fraud at Colonial Bank.
The Public Company Accounting Oversight Board (PCAOB), a
body created by the 2002 Sarbanes-Oxley Act to police auditors
in the wake of accounting scandals at Enron and Worldcom, has
said it uncovered examples of audit weaknesses during the
Some of the audits are under investigation and could result
in disciplinary action.
The SEC alleged that Aesoph and Bennett violated numerous
PCAOB audit standards during the TierOne review.
A PCAOB spokeswoman declined to comment on whether it would
seek to discipline the auditors because the law prohibits the
organization from disclosing any details.
The PCAOB wants Congress to remove the secrecy provisions
from the law so that companies won't be in the dark about
potential audit problems.