Dive Brief:

• Audit firm BF Borgers agreed to pay a $12 million civil penalty to resolve Securities and Exchange Commission charges that it committed massive fraud by performing sham reviews of clients’ financial statements, the agency said Friday.

• BF Borgers’ wrongdoing, which impacted at least 1,625 public filings and disclosures from January 2021 through June 2023, included falsely representing to clients that its work would comply with Public Company Accounting Oversight Board standards and fabricating audit documentation to make it appear that its work did comply with such standards, according to the SEC’s order resolving the case. The firm also falsely stated in audit reports included in more than 500 SEC filings that its reviews complied with PCAOB standards, the agency said.

• Among other companies, BF Borgers has performed work for Trump Media & Technology Group, which disclosed in a March SEC filing that it was a client of the auditing firm. Trump Media, which is majority-owned by former President Donald Trump, wasn’t mentioned in the SEC’s order.

Dive Insight:

The SEC charged both Colorado-based BF Borgers and its owner, Benjamin F. Borgers, with engaging in improper professional conduct as well as violating antifraud, recordkeeping, and other provisions of the federal securities laws.

As part of the settlement, the owner agreed to pay a $2 million civil penalty, the SEC said. In addition, both he and the company agreed to permanent suspensions from appearing and practicing before the commission as accountants, effective immediately, the agency said.

“Ben Borgers and his audit firm, BF Borgers, were responsible for one of the largest wholesale failures by gatekeepers in our financial markets,” Gurbir Grewal, director of the SEC’s Enforcement Division, said in a press release. “As a result of their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate noncompliant audits and reviews into more than 1,500 filings with the Commission, but also undermined trust and confidence in our markets.”

Of 369 BF Borgers clients whose filings from January 2021 through June 2023 incorporated BF Borgers's audits and reviews, at least 75% incorporated audits that that didn’t comply with PCAOB standards, according to the SEC.

Borgers and his company didn’t immediately respond to requests for comment. They consented to the SEC order without admitting to or denying its findings, the release said.

The SEC said the company failed to adequately supervise and review the work of the team performing the audits and reviews; did not properly prepare and maintain audit documentation, known as “workpapers;” and failed to obtain “engagement quality reviews,” without which an audit firm may not issue an audit report.

At Borgers’s direction, the firm’s staff copied workpapers from previous engagements for their clients, changing only the relevant dates, and then passed them off as workpapers for the current audit period, according to the SEC’s order. This resulted in the firm’s workpapers falsely documenting work that had not been performed, the agency said. 

The workpapers regularly documented purported planning meetings — required to discuss a client’s business and consider any potential risk areas — that never occurred and falsely represented that both Borgers, as the partner in charge of the engagement, and an engagement quality reviewer had reviewed and approved the work.

The settlement comes as the PCAOB has toughened enforcement since SEC Chair Gary Gensler has called on it to strengthen oversight of the accounting firms that audit publicly listed companies.

Last month, the PCAOB imposed a $25 million fine — the largest of any type imposed by the audit watchdog since it was created in 2002 — and sanctioned KPMG Netherlands and its former head of assurance in connection with alleged violations of quality control standards related to cheating and sharing of answers on the firm’s internal training exams.