Corporate & Securities Law

As alleged, Dwyer and Noncek were responsible for Bally?s materially false and misleading statements about its financial condition in filings with the Commission and in other public statements. These false and misleading statements exaggerated both the health of Bally's financial condition and its performance during the relevant period, according to the Commission charges. Dwyer settled the Commission case against him by consenting to several permanent injunctions, a penalty of $250,000, a permanent officer-director bar and a permanent bar from practice before the SEC. Noncek also consented to injunctive relief, and received a two-year bar from practice before the SEC.

In separate proceedings, the Commission charged Ernst & Young LLP and six of its current and former partners. In the settled order, the Commission found that E&Y knew or should have known about Bally?s fraudulent financial accounting and disclosures, and that the firm improperly unqualified audit opinions on Bally?s financial statements. The individual defendants charged were Randy G. Fletchall (partner in charge of E&Y?s national office), Mark V. Sever (national director of professional practice) Kenneth W. Peterson (professional practice director for the Chicago office), Thomas D. Vogelsinger (former Lake Michigan area managing partner), and William J. Carpenter and John M. Kiss (former engagement partners.)

E&Y and each of the E&Y partners also has settled with the SEC without admitting or denying the charges. E&Y agreed to pay $8.5 million to settle the SEC's charges. The SEC barred Sever, Peterson, Carpenter, Kiss and Vogelsinger from practicing before the SEC for varying periods, and censured Fletchall.

"It is deeply disconcerting that partners, even at the highest levels of E&Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits. This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence. The $8.5 million settlement, one of the highest ever paid by an accounting firm, reflects the seriousness of their misconduct," said Robert Khuzami, director of the SEC's Division of Enforcement.

"Ernst & Young and its partners on the Bally engagement violated their fundamental duty to function as public watchdogs, even after E&Y personnel identified Bally as one of the firm's riskiest audit clients," added Fredric D. Firestone, associate director in the Division of Enforcement.

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Full post as published by Jim Hamilton's World of Securities Regulation on December 18, 2009 (boomark / email).