As part of the settlement, the firm agreed to pay a $100,000 penalty, while the accountant, Nicholas Bottini, agreed to pay a $25,000 penalty, the SEC said Friday. Bottini has been permanently suspended from appearing and practicing before the SEC as an accountant, barring him from participating in financial reporting and audits of publicly traded companies. The New York-based firm has been suspended for one year and can only resume public company audits next year if an independent consultant certifies it has fixed the causes behind its failure to detect to the fraud.
The failed audit involved ContinuityX Solutions, a public company based in Metamora, Ill., which claimed to sell Internet services to businesses. The SEC has since charged ContinuityX’s executives alleging it engineered a scheme to inflate the company’s revenue through fraudulent sales.
The SEC said EFP Rotenberg and Bottini failed to perform enough audit procedures to uncover the fraud in ContinuityX’s financial statements. The firm and the accountant also didn’t get enough evidence about revenue recognition and accounts receivable to support its audits, according to the SEC, nor did it identify related-party transactions, investigate claims from company management that contradicted evidence found during the audit, perform procedures to resolve and document those inconsistencies, or exercise due professional care.
“Auditors are supposed to act as gatekeepers to protect the integrity of our markets, but EFP Rotenberg and Bottini failed to live up to their professional obligations,” said David Glockner, director of the SEC’s Chicago Regional Office, in a statement.