SEC Charges Audit Firm with Fraud for "Wholesale Failures," "Falsely Documented Work"

SEC Charges Audit Firm BF Borgers and Its Owner with Massive Fraud Affecting More Than 1,500 SEC Filings

The Securities and Exchange Commission today charged audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers (together, “Respondents”), with deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023. The SEC also charged the Respondents with falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work did comply with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards.

To settle the SEC’s charges, BF Borgers agreed to pay a $12 million civil penalty, and Benjamin Borgers agreed to pay a $2 million civil penalty. Both Respondents also agreed to permanent suspensions from appearing and practicing before the Commission as accountants, effective immediately.

SEC Charges Trump Media Auditor With Fraud

Gurbir S. Grewal, the S.E.C. director of enforcement, called the failures at BF Borgers “one of the largest wholesale failures by gatekeepers in our financial markets.”

The S.E.C. said it had found that the audit firm sometimes copied work it had previously done for clients and simply changed dates on filings. In the process, regulators said, the firm “falsely documented work that had not been performed.”

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The S.E.C. release said there was “no known defense counsel” for BF Borgers. In settling with the S.E.C., the audit firm and Mr. Borgers neither admitted nor denied the charges.

AI, Risk, and Public Company Disclosures

Since OpenAI launched ChatGPT in November 2022, the race to capitalize on emerging artificial intelligence (AI) technologies has super-charged the financial markets. The stock prices of AI-associated companies, such as Nvidia and Super Micro Computer, have soared. Several AI-related companies — such as, for example, Astera Labs and Rubrik — have recently successfully completed IPOs, so much so that that the long-moribund market for IPOs is showing definite signs of life. Other AI companies – including for example, Zapata and MultiplAI Health Ltd. — recently became public through mergers with SPACs.

With the consuming interest in AI in the financial markets, many companies want to try to catch some of the lightning for themselves. However, what the companies say about AI, their AI prospects, and their AI risks could have significant consequences for the companies’ corporate and securities litigation risks, as well as their risks of regulatory scrutiny.

The SEC’s in-house administrative adjudications docket

As we eagerly await a decision by The Supreme Court of the United States in the Jarkesy case, the U.S. Securities and Exchange Commission just released this latest edition of its twice-yearly report on the status of the agency’s in-house administrative adjudications docket. The report conclusively refutes those fearmongers who insist the sky will fall if the Court affirms the Fifth Circuit’s dismissal of the SEC’s charges against Mr. Jarkesy.

According to the report, the SEC’s three remaining ALJs collectively have only two(!) cases pending before them (down from the more than 75 cases pending before seven ALJs less than 10 years ago, pre-Lucia). Presumably, at least one of the current ALJs has literally no work to do anymore (most likely the new chief ALJ, hired last December for reasons entirely unclear). Collectively, the SEC’s ALJs have decided a grand total of three cases over the past two years (down from the many dozens they collectively decided each year during the years leading up to the Lucia decision).

Tensions Rise in Silicon Valley Over Sales of Start-Up Stocks

Sohail Prasad, an entrepreneur, launched a fund in March called the Destiny Tech100. The fund owns shares in hot tech start-ups like the payments firm Stripe, the rocket maker SpaceX and the artificial intelligence company OpenAI.

Few people get the chance to invest in these privately held companies since their shares are not openly traded. Mr. Prasad’s intention with Destiny was to let the rest of the world get a piece of them through his fund.

But soon after Destiny debuted, two tech start-ups — Stripe and Plaid, a banking service — said the fund did not legally own their shares. A competitor criticized Destiny as “too good to be true.” Robinhood, the stock trading app, stopped letting investors buy into the fund, saying it had been added to its app by mistake.

Law firms kicked off 2024 with strong demand and profits, report finds

Law firms are off to a strong start in 2024 after a lackluster 2023 that saw weak client demand and declining collections on billed work, new financial data shows.

Demand for legal services was up 1.9% in the first quarter of the year over the first three months of 2023, according to Thomson Reuters Institute’s Law Firm Financial Index, which tracks key financial metrics across 186 large and midsize law firms.

Billing rates, which were a consistent bright spot for firms in 2023, continued to rise with a 6.6% increase in the first quarter compared with a year ago, according to the index, released Monday.

Beware of Double Jeopardy in SEC Proceedings: SEC Roundup

Securities professionals beware.

Following the conclusion of federal court litigation, the SEC may prosecute you a second time for the same conduct in a follow-on administrative proceeding seeking to bar you from your chosen profession.

Hear from former SEC enforcement attorney and Assistant U.S. Attorney Keri Axel as she describes the problematic nature of these follow-on APs at a time when the constitutionality of SEC administrative proceedings is before the U.S. Supreme Court.