Former E&Y Audit Partner Faces Five Years on Obstruction Charges

Former Ernst & Young audit partner Thomas Trauger went to great lengths to keep from being “second-guessed” and last week pleaded guilty to charges he obstructed a federal investigation.

The subject of the government's probe was NextCard Inc., a San Francisco company that distributed credit cards via the Internet. The company's troubles began when it handed out too many cards to unqualified holders, the Associated Press reported. Federal regulators shut down the company's banking unit in early 2002.

Trauger admitted to knowingly altering, destroying and falsifying records with the intent to impede and obstruct an investigation by the U.S. Attorney's Office, CFO.com reported, but at heart, his goal was seemingly to avoid being "second-guessed" for failing to recognize red flags at a company that he had audited.

SEC official Robert Mitchell was interviewed at the time of Trauger's September 2003 arrest and said the audit partner was trying to "downplay or eliminate evidence of problems" that would have been red flags, according to USA Today, adding that he had previously given the company a clean bill of health.

An FBI affidavit showed that Trauger wanted to give the appearance that E&Y's audit of NextCard had been "right on the mark" so that "some smart-ass lawyer" wouldn't be able to second-guess him, the San Francisco Recorder, a legal newspaper, reported.

Trauger admitted last week that when testifying before the SEC he had failed to disclose that NextCard documents and quarterly working papers had been tampered with.

"This is one of the first cases in which an auditor has pled guilty to destroying key documents in an effort to obstruct a federal investigation," said U.S. Attorney Kevin V. Ryan, in a statement, reported by CFO.com.

Sarbanes Oxley sentencing guidelines could have put Trauger in prison for 25 years and levied a fine of $500,000. Under the plea agreement, he faces five years in prison when sentenced on Nov. 18, the AP reported.

You may like these other stories...

Following other recent high-profile hacking events, investigators discovered yesterday that hackers broke into the draft work paper files of several famous CPA firms. Revealing images of the scantily clad documents have been...
For bitcoin users, the taxman cometh. And you best know how to calculate taxes owed on what the IRS calls convertible virtual currency.In March 2014, the IRS issued Notice 2014-21, which declares virtual currency will be...
Earlier this year I wrote about my mixed feelings on Excel for iPad's debut. My closing sentence for that article read "The early iterations of Microsoft products tend to have rough edges that get smoothed out with...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.