SEC Sets Example by Barring Two Auditors

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The Securities and Exchange Commission announced this week that it has barred two auditors for "an egregious refusal to investigate the doubtful and see the obvious" in their audit of California Micro Devices.

The auditors, Michael J. Marrie and Brian L. Berry, worked for Coopers & Lybrand in 1994 when they audited the financial statements of California Micro Devices and failed to investigate an unusually large write-off at the end of the company's fiscal year.

As a result of the financial foul play, several former executives from California Micro Devices were found guilty of defrauding investors of approximately $100 million, and some of them serviced time in prison.

This week's announcement is unusual because neither of the former Coopers & Lybrand auditors work as accountants anymore. Yet the SEC chose to use this opportunity to send a message to the auditing profession that no one is beyond the watchful eye of the SEC. "When auditors see warning signs, they need to look into them," said Helane Morrison of the SEC.

No penalty was assessed of the two auditors, but, should they decide to return to the practice of accounting, they will be unable to participate in audits of publicly traded companies. An administrative law judge cited the two auditors in 2001, indicating that they may have been negligent but stopped short of accusing them of reckless behavior in their audit. The SEC reversed that decision by finding the two to be reckless in their work and by barring them from practice before the SEC.

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