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shreriif of wallstreet
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Date Posted: 11:22:38 05/31/03 Sat
SEC seeks ban on Ernst & Young
David Teather in New York
Saturday May 31, 2003
The Guardian
The securities and exchange commission is seeking to ban accounting firm Ernst & Young from taking any new clients for six months in what is seen as
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further evidence of US officials cracking down on corporate wrongdoing.
At the same time Schering-Plough, the pharmaceuticals firm, said it is under criminal investigation for allegedly selling unapproved drugs, submitting false pricing information to the government and obstructing justice.
The SEC, the US financial regulator, is seeking the injunction on Ernst & Young for allegedly failing to maintain independence from the clients it audits. Accounting firms have been under the spotlight since the collapse of the energy firm Enron called into question the relationship between the company and its auditor Arthur Andersen.
Enron went bankrupt after it emerged that it had created a series of off-balance sheet entities to hide its debts and inflate profits. The discovery led to Andersen going out of business.
The SEC claims Ernst & Young had violated auditor independence rules by working too closely on a computer software project with the company PeopleSoft, a client whose books it had audited.
It alleges Ernst & Young entered a marketing agreement with the company to sell its software.
"In this case, the evidence shows that in its relentless pursuit of profits deriving from relationships with its audit client, PeopleSoft, Ernst & Young lost sight of, and failed to meet, the high standards for the public perception of independence," the SEC said in a court filing.
Ernst & Young said it "strongly disagrees" with the SEC and said it had "no reason" to pursue sanctions. The case is pending before a Washington judge.
Schering-Plough said it had received a letter from the Massachusetts US attorney's office notifying it of the investigation. The letter warned that the government believes it has substantial evidence to support an indictment.
The company has previously said that its sales, marketing and clinical trials process was under investigation but the latest letter details a wider and apparently more serious criminal inquiry.
Schering said the investigation is focusing on four areas including the offering of incentives to doctors and managed care organisations to buy drugs from the company under federal funded programmes, including free samples and clinical trial grants.
Prosecutors are also examining the sale of misbranded or unapproved drugs and submitting false pricing information to the government which is used for the calculation of rebates under the federal Medicaid programme. The obstruction of justice investigation is trying to establish whether the company destroyed documents to keep information from the inquiry.
Schering said it would continue to cooperate with the investigation.
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SEC seeks ban on Ernst & Young