When the U.S. Securities and Exchange Commission tells a CPA, “Thou shalt not practice,” they don’t mean maybe. The SEC filed a settled enforcement action January 11 against Michael R. Drogin, of New York and New Jersey.
Drogin was ordered by the SEC in 2003 to not appear before or practice before the commission based on his failure to exercise due professional care in the audit of a client’s financial statements. The SEC maintains that in spite of that order, Drogin performed work for clients who later submitted that work to the commission, thus creating a paper trail of his violations.
According to a 2011 SEC complaint, Drogin was a partner in the Garden City, New York-based firm of Liebman Goldberg & Drogin, LLP, between 2005 and 2008. In that capacity, the SEC states that he performed audit, review, and other accounting work for three companies.
Drogin is accused of violating the SEC order in 2005 by participating in the financial statement audit of a small company. That company later filed a registration statement with the SEC, seeking to become a public company. Included with that registration statement was the audit report performed by Drogin.
In 2007, the SEC said Drogin participated in the audit of three companies. Those audits became part of various filings by the companies, including registration statements, proxy statements, and an annual report.
In addition, the complaint against Drogin states that he reviewed quarterly and other SEC filings for the three companies and also advised the management of those companies regarding the filings.
Drogin also is believed to have assisted two of the companies in responding to comments from the SEC’s Division of Corporation Finance concerning the registration statements.
The complaint also alleges that, in 2008, Drogin issued audit reports for all three companies without having completed the audits. In these reports, the statement was made that audits had been performed according to applicable auditing standards, providing in each case a reasonable basis for an unqualified report.
The SEC maintains that Drogin knew these companies would include the fraudulent audit reports in correspondence with the SEC. The issuance of these fraudulent audit reports, along with aiding and abetting the infringement of securities law reporting requirements, violate the antifraud provisions of federal securities law, according to the SEC.
Though Drogin neither admitted nor denied the charges, he consented to an entry of final judgment which permanently enjoins him from directly or indirectly violating the SEC’s 2003 order, as it was amended on January 11, 2011. In the January 11 proceedings, Drogin was ordered to pay disgorgement and prejudgment interest of $43,612.04 and a civil penalty of $38,953.17. This settlement is subject to approval of the court. The SEC also amended the 2003 order, removing the time limit that was part of the prior suspension.