SEC Appeal Seeks to Bar Auditors
Securities and Exchange Commission lawyers will take another stab this week at trying to bar two accountants they fault for not uncovering fraud at California Micro Devices Corp. almost 10 years ago.
Former Coopers & Lybrand auditors Michael Marrie and Brian Berry gave a clean bill of health to Cal Micro’s 1994 financial statement even though the semiconductor company had just written off more than half its accounts receivable, citing product returns.
The SEC said the pair recklessly ignored “unmistakable red flags.”
In 1995, after finding revenue had been inflated by bogus sales, Cal Micro restated 1994 earnings, turning a reported $5-million profit into a $15-million loss.
After a contentious trial, SEC Administrative Law Judge James Kelly dismissed all charges against Marrie and Berry in 2001. At worst, Kelly said the pair were negligent but not reckless. He said the SEC “cannot bootstrap its way to victory in an auditing-recklessness case by stringing together separate acts of auditing negligence.”
On Thursday, the SEC will hear an appeal from its enforcement division, which still is seeking to bar Marrie and Berry from auditing. Although both men still have their professional licenses, neither works as an accountant. Marrie is an administrator and Berry is a finance executive at EDT Learning Inc. in Phoenix.
Michael Perlis, an attorney representing Marrie and Berry, said he was disappointed the SEC still was pressing the issue, and claimed barring his clients now would be unnecessary and “overly harsh.”
“This was a case that never should have been brought,” Perlis said. He said that the auditors’ work for Cal Micro complied with generally accepted auditing standards and that the SEC never proved that Cal Micro’s 1994 financial statement was false.
Chan Desaigoudar, former Cal Micro chief executive, was convicted of fraud, but the verdict was overturned by the U.S. 9th Circuit Court of Appeals. He later pleaded guilty to insider trading and was sentenced to 2 1/2 years in prison.
