The Securities and Exchange Commission has barred Denver accountancy Levine, Hughes, and Mithuen Inc. (LHM) from auditing public companies, based on the firm’s role in an accounting scandal at one of its former clients.

The SEC asserted that while serving as auditor for Sport-Haley Inc. from 1998 through 2000, LHM caused the sports apparel company to file quarterly and annual reports that materially misrepresented the company’s income, inventory, costs, and discontinued headwear operations.

The commission also found that LHM knew or was reckless in not knowing that certain financial accounting and reporting practices were improper; that it assisted in carrying out those practices; and that it issued audit reports containing unqualified opinions in Sport-Haley’s financial statements even though LHM auditors “knew or were reckless in not knowing the company’s 1998 and 1999 financial statements were materially misstated.”

The regulator also asserted that when LHM learned of the probe of Sport-Haley and had received document requests from the commission, LHM personnel added information to the audit work papers, improperly altered some original work papers, disposed of some Sport-Haley documents in LHM’s office, and destroyed review notes that had been created as part of LHM’s review of past Sport-Haley audits.

The SEC sanctioned Levine, Hughes, and Mithuen and issued a cease-and-desist order against the accounting firm. LHM, which did not admit or deny the commission’s findings, agreed to cease and desist from future violations, to pay a $50,000 penalty, and not to practice accounting before the SEC. The firm can apply for reinstatement in three years.