Accountancy PKF Cyprus Settles with SEC

Global firm with offices in Nicosia and Limassol consents to civil charges that it engaged in a fraud at AremisSoft.
Stephen TaubApril 16, 2008

A Cyprus-based accounting firm agreed to pay $261,565 to settle Securities and Exchange Commission civil fraud charges stemming from audits of AremisSoft Corp., a Nasdaq-traded company that went bankrupt in 2002.

According to the U.S. regulator, Savvides & Partners/PKF Cyprus, consented to charges that it engaged in fraud in connection with its 1999 and 2000 audits of AremisSoft. The accounting firm, known as PFK Cyprus, agreed to settle without admitting to or denying the allegations in the SEC complaint.

The accounting firm also agreed to be suspended from appearing or practicing before the Commission as an accountant for five years. It will also disgorge $106,513, which includes fees received as a result of its engagements to audit the financial statements of AremisSoft, with prejudgment interest of $48,539, and a $106,513 civil money penalty.

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PKF Cyprus is an accounting firm with offices in the Cyprus cities of Limassol and Nicosia, and is a member of PKF International Ltd., an association of over 380 legally independent accounting and consulting practices located in 119 countries.

In its complaint filed in March 2006, the commission alleged that PKF Cyprus issued audit reports for AremisSoft subsidiaries in 1999 and 2000 signed by former firm partner Pavlos Meletiou — also named as a defendant in the complaint — that falsely stated that its audits were conducted in accordance with U.S. Generally Accepted Auditing Standards and that the subsidiaries’ financial statements were fairly presented in accordance with U.S. GAAP.

The false financial statements of these companies were included as part of AremisSoft’s consolidated financial statements filed with AremisSoft’s 1999 and 2000 annual reports, and in AremisSoft registration statements.

The complaint also alleges that the PKF Cyprus audit workpapers prepared by Meletiou during the 2000 audits of two AremisSoft subsidiaries, found in a trash heap outside AremisSoft’s Indian offices, included phony customer and bank confirmations.

The Commission also alleges that Meletiou attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud was openly discussed.

Almost exactly two years ago, the SEC settled charges against PKF, a U.K. accounting firm and two of its former partners based on their audit of AremisSoft. In 2005, PKF converted to PKF (UK) LLP, a limited liability partnership.

The SEC had filed an action against PKF and one of the firm’s former partners, Anthony Frederick John Mead. The commission also settled combined administrative proceedings against PKF, Mead, and Stuart John Barnsdall, another partner who worked on the 2000 audit. The firm and the two former partners settled without admitting or denying the SEC’s findings.

AremisSoft, a software company, went public in April 1999, and reported revenues of $52.6 million for 1998, $73.4 million for 1999, and $123.6 million for 2000. In November 2000, AremisSoft had a market capitalization of more than $1 billion. Eight months later, it failed to file its second quarter 2001 financial report with the Commission.

The company subsequently announced that it could not substantiate about $90 million of the revenues the company reported in 2000. In March 2002, AremisSoft filed for bankruptcy.