The Securities and Exchange Commission in USA on Tuesday barred two auditors for missing signs of financial fraud that occurred at a Silicon Valley chip maker nearly a decade ago.
Reversing the 2001 decision of an administrative law judge, the SEC concluded that Michael J. Marrie and Brian L. Berry didn't fulfill their watchdog duties as the auditing team that certified the 1994 financial results of Milpitas-based California Micro Devices.
Regulators later learned that California Micro's management had fabricated revenue to conceal a $15 million loss. The ruse enabled California Micro to report a 1994 profit of $5 million, triggering a business scandal that resulted in criminal charges against several former executives, as well as numerous civil lawsuits.
Tuesday's decision admonished Marrie and Berry for falling down on the job as the accountants assigned to audit California Micro Devices' 1994 statement. At the time, the two men worked for the accounting firm Coopers and Lybrand, now part of PricewaterhouseCoopers.
The conduct of Marrie and Berry represented “an egregious refusal to investigate the doubtful and see the obvious,” the SEC said in its decision. The opinion also chastised the two men for “a reckless violation of their professional duties.”
In a 2001 decision, an administrative law judge had declined to bar Marrie and Berry, arguing that they may have been negligent, but not reckless, in their audit.
Michael Perlis, an attorney representing Marrie and Berry, didn't respond to a telephone message late Tuesday.
The SEC went to extraordinary lengths to bar Marrie and Berry, even though the two men are no longer working as accountants.
Berry is the vice president of finance at EDT Learning Inc., a small, publicly traded software company in Phoenix. Marrie is an administrator at an Arizona business, SEC officials said Tuesday.
The SEC decided to press its case against the two men to send a strong message to other auditors responsible for signing off on the financial statements at companies across the country, said Helane Morrison, who runs the agency's San Francisco office.
“When auditors see warning signs (of financial misconduct), they need to look into them,” she said.
The ban didn't impose a financial penalty on the two men.
The regulatory crackdown at California Micro Devices resulted in the criminal conviction of the company's one-time chief executive, Chan Desaigoudar, on insider trading charges. Desaigoudar is still pursuing a wrongful termination suit against California Micro Devices, according to the company's SEC filings.
Operating under a different management team, California Micro Devices reported a loss of $6.5 million on revenue of $42.2 million in its last fiscal year ended in March.