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McGladrey & Pullen settles over Sentinel dispute

McGladrey & Pullen and CPA firm Altschuler, Melvoin and Glasser have been ordered to pay the Securities and Exchange Commission (SEC) $1.7m over deficient audits of the bankrupt fund manager Sentinel Management Group.

The SEC has also censured McGladrey & Pullen director Victor Johnson II, who worked at Altschuler, Melvoin and Glasser at the time of the audits. McGladrey & Pullen acquired Altschuler, Melvoin and Glasser in 2006.

The Commodity Futures Trading Commission (CFTC), an independent agency that regulates commodity futures and option markets in the US, investigated the role of the auditor.

The CFTC found the respondents’ audits of Sentinel deficient in several areas, resulting in a failure to respond to material misstatements in Sentinel’s financial statements and material inadequacy in Sentinel’s internal controls.

From 2002 through 2006, Sentinel was required by the SEC’s custody rule to have an accountant verify all of its client funds and securities by surprise examination at least once each calendar year.

Altschuler, Melvoin and Glasser was the independent public accounting firm that Sentinel retained to perform its surprise examinations from 2002 through 2006. Johnson was the engagement partner overseeing the Sentinel surprise examinations for every year except 2004, but he failed to conduct the examinations in accordance with the professional standards applicable to examinations, according to the SEC.

This meant that Sentinel violated the custody rule and the Advisers Act.

Altschuler, Melvoin and Glasser, and Johnson also failed to meet the American Institute of Certified Public Accountants attestation standard, according to the SEC.

Following the CFTC investigation, the SEC settled with all parties involved. McGladrey & Pullen is to pay $400,000 in restitution to Sentinel’s customers and $150,000 in penalties. Altschuler, Melvoin and Glasser will pay $800,000 in restitution and $350,000 in penalties.

Johnson, 69, was denied the privilege of appearing or practicing before the SEC as an accountant.

 

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