The SEC today charged Ernst & Young LLP and six of its current and former partners for their alleged roles relating to an accounting fraud at Bally Total Fitness. Three of the partners are members of the firm’s national office.
The SEC alleges that E&Y, which was the independent auditor for Bally’s, issued “false and misleading” unqualified audit opinions stating that Bally’s 2001 to 2003 financial statements were presented in conformity with GAAP, and that E&Y’s audits were conducted in accordance with GAAS.
The SEC announced that E&Y has agreed to pay $8.5 million to settle the SEC’s charges, and that each of the E&Y partners also has settled the SEC’s charges against them.
Robert Khuzami, Director of the SEC’s Division of Enforcement, said that the $8.5 million settlement was one of the highest ever paid by an accounting firm, and reflected “the seriousness of their misconduct.”
The SEC further noted that E&Y’s alleged misconduct in the case came even after E&Y had identified Bally as one of the firm’s riskiest audit clients. Out of more than 10,000 audit clients in North America, E&Y identified Bally as one of E&Y’s riskiest 18 accounts.
