The most common forum for malpractice claims is civil litigation. However, a professional may find himself in a potentially worse situation if the appropriate professional regulatory board also gets involved. Take for example a recent case of accounting malpractice that demonstrates the serious side effects that can occur when an accountant falls short of the standards of the profession.
In the underlying matter the SEC permanently suspended Accountant from appearing and practicing before the SEC for conducting a faulty audit of its client, a public company. Client claimed to sell internet services to businesses. Just last year the SEC had charged the former CEO and CFO of the Client with fabricating nearly all of the company’s revenue and engineering a scheme to inflate the company’s revenues.
According to a press release by the SEC, during the Client’s audit, Accountant failed to detect the fraudulent and fictitious sales in the company’s financial statements. The SEC’s Order instituting a settled administrated proceeding, found that Accountant engaged in improper professional conduct and violated various sections of the Securities Exchange Act and the SEC’s Rules of Practice.
As part of the suspension, Accountant is barred from participating in the financial reporting or audit of public companies. The accounting firm where he was a partner was also slapped with a penalty prohibiting the firm from accepting new public company clients for one year. The ban on new clients can only be lifted after an independent consultant certifies that the firm corrected the causes of the audit failure. In addition, both Accountant and the firm agreed to pay monetary penalties to the SEC to settle the charges.
As noted in the press release, the Director of the SEC’s Chicago Office stated that, “auditors are supposed to act as gatekeepers to protect the integrity of our markets, but [the accountant and firm] failed to live up to their professional obligations.” Make no mistake, civil litigation can be a difficult process. But, this decision exemplifies how regulatory involvement can land a professional in very hot water.