BDO Cyprus, an overseas affiliate of BDO Seidman, has reached a settlement agreement with the Securities and Exchange Commission over the audit of collapsed company ACLN Ltd. ACLN, a Cyprus corporation, now de-listed from the New York Stock Exchange (NYSE:ASW), is the subject of a fraud action filed this week by the SEC.
The civil suit filed by the SEC alleges that ACLN knowingly participated in an "exceptionally bold and elaborate financial fraud that resulted in losses of hundreds of millions of dollars to investors in the U.S. and abroad" and that BDO Cyprus and two named partners, Minas Ioannou and Christakis Ioannou, are guilty of failing to conduct "basic audit procedures that would have detected ACLN's financial fraud and its forgery of bank account statements."
The SEC seeks to recover $45 million from ACLN. In addition, BDO Cyprus has agreed to pay $62,196, which represents the audit fees received from ACLN for the 1998 through 2001 audits. In addition, the two BDO Cyprus partners are permanently suspended from practicing as accountants before the SEC.
Some of the more egregious issues noted by the SEC include the complaint that ACLN, a company that purportedly ships used vehicles to North and East Africa and sells new cars in that region, claimed significant revenue from a new car sales operation that in fact never even existed, claimed to have bank account balances exceeding $117 million when in fact the balances were less than $2 million, created forged bank documents that were provided to its auditors, and does not own the largest physical asset on its balance sheet which, in any event, was significantly inflated in value.
The SEC accused BDO Cyprus of not doing its job with regard to the audit of ACLN. The Commission also noted an independence issue regarding the fact that ACLN's bookkeeping services were performed by an entity owned and directed, in part, by principals at BDO Cyprus. The SEC complained that BDO Cyprus failed to obtain independent confirmation of bank account balances, accounts receivable balances, or even the existence of ACLN customers.
Insider trading netted ACLN executives about $80 million while the company was prospering in the wake of a clean audit report from BDO Cyprus.
BDO Seidman and BDO Cyprus are members of BDO International of Brussels, Belgium, the fifth-largest accounting firm in the world.