SEC Calls Bank Auditors Rubber-Stampers

WASHINGTON (CN) - The SEC on Wednesday charged two KPMG auditors - but not KPMG - with "rubber-stamping" reports from a Nebraska bank that failed during the financial crisis after hiding millions of dollars in losses.

The SEC last year charged three executives of Lincoln, Neb.-based TierOne bank with misleading investors and the SEC by understating the bank's losses.

CEO Gilbert Lundstrom and COO James Laphen settled with the SEC, as did Lundstrom's son Trevor, who was accused of trading on inside information his father gave him. The Lundstroms and Laphen agreed to cough up $1.2 million, the SEC said.

TierOne's chief credit officer Don Langford is fighting the case, which the SEC filed in September 2012.

On Wednesday, the SEC filed administrative proceedings against KPMG partner John Aesoph, of Omaha, and senior manager Darren Bennett, of Elkhorn, Neb., accusing them of "improper professional conduct."

"Aesoph and Bennett merely rubber-stamped TierOne's collateral value estimates and ignored the red flags surrounding the bank's troubled real estate loans," SEC Enforcement Director Robert Khuzami said in a statement.

"They relied principally on stale appraisals and management's uncorroborated representations of current value despite evidence that management's estimates were biased and inconsistent with independent market data," the SEC said in its statement. "Aesoph and Bennett failed to exercise the appropriate professional skepticism and obtain sufficient evidence that management's collateral value and loan loss estimates were reasonable."

After a hearing before an administrative law judge, the judge will have 300 days to decide what, if any, sanctions are appropriate.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit