The U.S. Securities and Exchange Commission said a local auditing firm rubberstamped a possibly fraudulent stock valuation in violation of federal accounting rules.
Spicer Jeffries, a 30-year-old firm in the Denver Tech Center that has run afoul of the SEC before, was publicly censured for a second time March 29. An executive at the company was also suspended from appearing before the SEC as an accountant for one year.
An investigation by the SEC’s Denver office determined that an unnamed Colorado investment advisor hired Spicer Jeffries to audit two funds in 2019. The funds contained preferred stock in two companies that could double in value if the companies were sold, the SEC says.
The investment advisor had incorrectly calculated the value of the funds as if the companies were being sold when, in fact, there was no evidence they were being sold.
Spicer Jeffries was told before auditing the investment funds that the advisor had used this unusual calculating method. Within the firm, employees determined that valuating stocks such as those in the funds carried a “significant fraud risk,” according to the SEC.
And yet, the auditing team, led by audit partner Sean Tafaro, did not scrutinize the advisor’s approach. Instead, they only checked that his or her calculations were correct.
“As a result of Tafaro’s deficient and improper professional conduct, Spicer Jeffries issued unqualified audit reports,” the SEC wrote in its 18-page order last week.
Spicer Jeffries and Tafaro did not admit wrongdoing but did consent to the SEC’s findings and punishments. In addition to the censure and Tafaro’s suspension, the firm must also hire a consultant to review its auditing policies and procedures, the SEC order states.
“Auditors are critical gatekeepers that must employ a robust system of quality control to ensure adherence to professional standards,” SEC attorney Andrew Dean said in a statement.
Spicer Jeffries was also censured in 2015, after the SEC found it did not have documentation to support a half-dozen audits of stock brokers that it filed between 2009 and 2013.
The Denver-based firm, which has other offices in Florida and the Cayman Islands, is among the 10 largest hedge fund auditing firms in the U.S., according to its website.
Tafaro and Robert Yurglich, the firm’s managing partner, did not respond to requests for comment. Neither did their attorneys, Dean Aarestad and Jeffrey Thomas.