Like many auditors, Berman had inserted a clause into his contract that required MusclePharm to pay his legal expenses in the event of such an investigation.
But the SEC didn’t like that arrangement. This March, the SEC filed an action against him, in effect telling Berman to pay his own legal expenses if he wanted to be considered an independent auditor.
In the SEC’s view, the fact that MusclePharm had agreed to reimburse Berman & Co. for legal costs associated with the SEC investigation destroyed Berman & Co.’s independence as an auditor. I take the opposing view that the SEC’s aggressive theory threatens to upend the relationship between auditors, their lawyers, and their clients.
