Accounting & Tax

Three Accountants Face Charges of Securities Fraud Over Audit

The SEC alleges Coopers & Lybrand auditors masked deteriorating finances at Allegheny Health.
CFO.com StaffAugust 3, 2001

The Securities and Exchange Commission took the unusual step of charging three accountants with securities fraud in connection with their audits of Allegheny Health Education & Research Foundation, a Pennsylvania nonprofit organization that filed for bankruptcy, reports the Wall Street Journal.

William Buettner, Mark Kirstein and Amy Frazier, senior accountants at Coopers & Lybrand LLP, now PricewaterhouseCoopers LLP, “actively participated” in a fraud scheme to mask deteriorating finances at Allegheny Health, according to the SEC.

The move comes as the regulatory agency is intensifying its campaign to crack down on what officials consider an accounting-fraud epidemic, says the Journal.

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“It’s rare that we would sue accountants for fraud in federal court,” Ronald Long, district administrator of the SEC’s Philadelphia office told the Journal. In the past, the agency has sought to discipline accountants through lesser administrative proceedings.

Long added that was one of the first complaints taken against auditors in an alleged case of municipal-bond fraud.

Allegheny Health, the largest nonprofit health-care organization in Pennsylvania at its height, settled SEC fraud charges last year and agreed to a cease-and-desist order. It filed for bankruptcy in 1998.

Lawyers for the three accountants disputed the charges, telling the Journal, among other things, that they were “utterly false.”

PricewaterhouseCoopers and its predecessor, Coopers & Lybrand, weren’t named in the SEC’s lawsuit, filed in federal court in Pennsylvania, Journal.

According to the SEC, the three accountants helped Allegheny Health transfer $99.6 million from the books of a recent acquisition to an ailing unit known as the Delaware Valley Obligated Group. Allegheny Health allegedly transferred $50 million by April 1997, and moved an additional $49.6 million in July 1997.

The three auditors knowingly participated in “a shell game,” Long told the Journal. As a result of the transfers, the SEC said Allegheny Health and the Delaware Valley group reported net income for fiscal 1997, when in reality, both were operating with a substantial net loss.

Buettner, Kirstein, and Frazier allegedly “turned a blind eye to the fraud” and sought to conceal it from other Coopers & Lybrand accountants for more than a year, according to the complaint.

Coopers & Lybrand issued clean audit opinions on Allegheny Health that were distributed to investors holding more than $900 million of bonds. In September 1998, after filing for bankruptcy, Allegheny Health issued a news release acknowledging that the 1997 audits were inaccurate.

If the SEC wins its civil-fraud suit, the three auditors would face a court order permanently barring them from future securities-law violations and fines of as much as $110,000 for each violation, according to the Journal.

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