Stephen B. Pence, a former U.S. attorney and lieutenant governor of Kentucky, has been accused of fraud in an SEC civil action for his part in a scheme involving millions of dollars of missing money, the SEC announced Wednesday.
The fraud involved the national auditing firm BDO USA, which dismissed red flags and issued false and misleading audit opinions about the financial statements of General Employment Enterprises, a staffing services company, the SEC says.
Pence served as U.S. attorney in Kentucky from 2001 to 2003 and lieutenant governor from 2004 to 2006. He is a lawyer in Louisville, Ky.
Five of BDO's partners have been charged by the SEC in addition to Pence, who was General Employment Enterprises chairman of the board and majority shareholder, according to the complaint.
The charges arose out of the audit of General Employment for 2009, when $2.3 million was supposedly invested in a 90-day nonrenewable CD, according to the SEC. However, there was no bank record of a CD ever being purchased, the complaint said, adding that the $2.3 million represented about half of the company’s assets and substantially all of its cash.
General Employment eventually received $2.3 million from three unrelated companies. BDO never received reasonable explanations about why the $2.3 million went missing and why an equivalent amount was later received by the company under suspicious circumstances, the SEC charges. Despite the questions, BDO issued an unqualified audit report for the company.
BDO agreed to admit wrongdoing, pay disgorgement of its audit fees and interest totaling approximately $600,000, and pay a $1.5 million penalty in addition to complying with undertakings related to its quality controls.
BDO executives Sean C. Henaghan, John E. Rainis, James J. Gerace, Leland E. Graul and Wendy M. Hambleton have agreed to settle the charges against them. They agreed to discontinue public company practice for various periods of time and to pay penalties ranging from $30,000 to $10,000.
The litigation against Pence is continuing, according to the SEC. He is charged with making misleading statements to auditors about the $2.3 million, the SEC says.
Two General Employment former CEOs, Ronald E. Heineman and Salvatore J. Zizza, were charged with making misleading statements and omissions to BDO. Without admitting to or denying the findings, they consented to SEC orders requiring them to each pay $150,000 penalties.