« FINRA Rewinds 2010 Back | Main | Madoff Trustee Negotiates Historic Settlement » Welcome All... Sponsoring Firm:December 20, 2010 Audit, Compliance, CorporateCuomo Eyes E&Y in Lehman Collapse Case Governance, Counterparty Credit, Credit Risk, Financial/Internal Controls, Legal, Market Risk, Operational Risk, Pricing and Valuation, Product Controllers, Regulatory Reporting, Risk Management and Risk Modeling Professionals The Hedge Funds Exchange Interested in the latest news and regulatory developments for Hedge Funds? HedgeFundsX is the site for you!Amanda White, CompliancEX News, December 20, 2010 ResourcesAccording to the ABC News on Monday, New York prosecutors are preparing to file civil Click Here To Go Back Tofraud charges against accounting firm Ernst & Young LLC related to that firm’s role in Homepagethe collapse of investment bank Lehman Brothers in 2008. Regulatory Site SearchThe suit, led by New York Attorney General Andrew Cuomo, stems from Ernst &Young’s use of an accounting technique called Repo 105, which Lehman’s court Current Newsappointed examiner claims gave the appearance that Lehman was reducing its leveragelevels in 2008, when in reality it wasn’t. Madoff Trustee Negotiates Historic SettlementLehman, which filed the biggest bankruptcy in history after it collapsed in 2008, used Cuomo Eyes E&Y in LehmanRepo 105 to temporarily remove $50 billion of assets off of its balance sheets. Collapse CaseLehman’s examiner, Anton Valkulas, says that Lehman’s bankruptcy estate could have FINRA Rewinds 2010 Backgrounds to sue Ernst & Young for negligence and malpractice. U.S. SEC Expands MortgageA suit against a big auditing firm like Ernst & Young would be unusual, say legal Probeexperts. After the government sued auditor Arthur Andersen for its role in the Enron SEC Commissioner Explainsdebacle, Andersen collapsed, which reduced the number of major global accounting Municipal Bond Regulationfirms to just four, including Ernst & Young. Prosecutors, worried that another firm could Financial Advisor Pleads Guiltycollapse, have since been more likely to charge individual auditors. to Defrauding Disabled Children Federal Insider Trading ProbeDespite the rarity of this type of case, the suit filed by Cuomo could ultimately help Could Mean Unhappy NewLehman’s creditors recover more money from the firm’s collapse, and should not Year for Some Execsprevent individual creditors from filing their own actions against Ernst & Young. Ex-Jefferies Money Manager Contorinis Gets Six-Year Term in Insider Scheme FINRA Promises More Greater High- Frequency Oversight in 2011 Banks Increase Derivatives Holdings Join CompliancEx on Linkedin!
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Home | Previous PageSEC Charges Former Deloitte Partner and Son WithInsider TradingFOR IMMEDIATE RELEASE2010-140Washington, D.C., Aug. 4, 2010 — TheSecurities and Exchange Commission today High-Res Photocharged a former Deloitte and Touche LLPpartner and his son with insider trading inthe securities of several of the firms auditclients.Additional Materials SEC Complaint Against Thomas Flanagan and Patrick Flanagan SEC Administrative Order Against Thomas Flanagan Litigation Release No. 21612The SEC alleges that Thomas P. Flanagan ofChicago traded in the securities of Deloitteclients, often while serving as a liaison “Thomas Flanaganbetween those companies management repeatedly betrayed histeams and Deloittes audit engagement ethical responsibilities andteams. In this role, Flanagan had access to his clients trust by trading on confidential informationadvance earnings results and other nonpublic to enrich himself and hisinformation from Deloittes audit family.”engagements with Best Buy, Sears, and Merri Jo GilletteWalgreens as well as the firms consulting Directorengagement with Motorola. Flanagan made SEC Chicago Regionaltrades in the securities of these and other Officecompanies while in possession of theconfidential information, and also tipped hisson Patrick T. Flanagan who then traded onthe basis of the nonpublic information.The Flanagans agreed to pay more than $1.1 million to settle the SECscharges."Flanagans insider trading violated one of the most fundamental rules ofpublic accounting," said Robert Khuzami, Director of the SECs Division ofEnforcement. "All audit firms should learn from this unfortunate episode andemploy vigorous controls designed to ensure compliance with the SECsauditor independence rules."Merri Jo Gillette, Director of the SECs Chicago Regional Office, said,"Thomas Flanagan repeatedly betrayed his ethical responsibilities and hisclients trust by trading on confidential information to enrich himself and hisfamily."According to the SECs complaint, filed in the U.S. District Court in Chicago,Thomas Flanagan worked at Deloitte for 38 years and rose to the position
of Vice Chairman of Clients and Markets. The SEC alleges that Flanagancommitted insider trading on nine occasions between 2005 and 2008 bytrading in the securities of multiple Deloitte clients and a company acquiredby Deloitte client Walgreens. Flanagan was in possession of nonpublicinformation about those clients that he learned through his duties as aDeloitte partner, including such material market-moving events as earningsresults, earnings guidance, and acquisitions. Flanagans illegal tradingresulted in profits of more than $430,000. On four occasions, Flanaganrelayed the nonpublic information to his son, who traded based on thatinformation for illegal profits of more than $57,000.In addition to the court-filed complaint alleging illegal insider trading, theSEC also instituted administrative proceedings against Thomas Flanagan,finding that he violated the SECs auditor independence rules on 71occasions between 2003 and 2008 by trading in the securities of nineDeloitte audit clients. Accountants are not independent if they own orcontrol securities in the clients that they audit. The SECs settledadministrative order finds that while Thomas Flanagan owned or controlledclient securities, Deloitte issued audit reports to the clients stating that thefinancial statements contained in the reports had been audited by anindependent auditor. However, Deloitte was not independent due toFlanagans ownership and control of the audit clients securities. As a result,the SECs administrative order finds that Thomas Flanagan caused andwillfully aided and abetted Deloittes violations of the SECs auditorindependence rules under Regulation S-X. Flanagan also caused and willfullyaided and abetted the clients violations of the reporting and proxyprovisions of the Securities Exchange Act of 1934.According to the SECs complaint, Thomas Flanagan concealed his trades inthe securities of Deloittes clients and circumvented Deloittes independencecontrols. He failed to report the prohibited trades to Deloitte, lied to Deloitteabout his compliance with its independence policies, and provided falseinformation to Deloittes personal income tax preparers about the identity ofthe companies whose securities he traded.As a result of their conduct, the SECs complaint charged Thomas andPatrick Flanagan with violations of Sections 10(b) and 14(e) of theExchange Act and Rules 10b-5 and 14e-3. The SECs administrative actionfound that Thomas Flanagan caused and willfully aided and abettedDeloittes violations of Rule 2-02(b)(1) of Regulation S-X, and caused andwillfully aided and abetted the clients violations of Sections 13(a) and 14(a)of the Exchange Act, and Rules 13a-1, 13a-13, and 14a-3 thereunder.Without admitting or denying the SECs allegations in the complaint and thefindings in the administrative order, Thomas Flanagan consented to theentry of an order of permanent injunction, disgorgement with prejudgmentinterest of $557,158, a penalty of $493,884, and a denial of the privilege ofappearing or practicing before the SEC as an accountant. Without admittingor denying the SECs allegations in the complaint, Patrick Flanaganconsented to the entry of an order of permanent injunction, disgorgementwith prejudgment interest of $65,614, and a penalty of $57,656.James OKeefe, Steven Klawans, and Kathryn Pyszka conducted the SECsinvestigation in this matter. The SEC acknowledges the assistance of FINRAand the Options Regulatory Surveillance Authority in this investigation. # # #For more information about this enforcement action, contact:Timothy L. WarrenAssociate Regional Director, SEC Chicago Regional Office
(312) 353-7394Steven L. KlawansAssistant Regional Director, SEC Chicago Regional Office(312) 886-1738http://www.sec.gov/news/press/2010/2010-140.htmHome | Previous Page Modified: 08/04/2010