One of the largest real estate holders of senior housing has been cleared of wrongdoing in a probe by the Securities and Exchange Commission (SEC) about an alleged improper personal relationship between an executive and an independent auditor. Chicago-based Ventas Inc. (NYSE: VTR) received a letter from the SEC about the investigation notifying the company the investigation had concluded.
“Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Ventas,” the letter stated, according to public records submitted by Ventas.
The probe questioned the circumstances of Ventas’ former registered public auditing firm’s determination in July 2014 that it was not independent of the company. Independent auditors must follow strict rules to be objective.
In July 2014, Ventas severed ties with its accounting firm Ernst & Young LLP. Ernst & Young misrepresented that it was independent in its dealings with its clients, and allegedly got too close to its clients. At the time, Ventas admitted that it was aware of an “inappropriate personal relationship” between a senior auditor at Ernst & Young and Ventas’ now former chief accounting officer and controller, Crain’s Chicago Business reported. The Ventas employee, Robert Brehl, was reportedly dismissed from his position.
Ernst & Young was ordered to pay $9.3 million to settle charges that two of the firm’s audit partners got too close to their clients on a personal level and “violated rules that ensure firms maintain their objectivity and impartiality during audits,” the SEC announced on Sept. 19, 2016. In addition to the situation involving Ventas, an Ernst & Young employee caused auditor independence rule violations with a New York-based audit client, the SEC stated.
Ernst & Young’s Pamela Hartford violated audit rules from March 2012 to June 2014 over her relationship with Brehl while she served on the engagement team auditing Ventas, according to the SEC.
Furthermore, another Ernst & Young partner, Michael Kamienski, who supervised Hartford’s audit of Ventas, learned of the inappropriate relationship, but failed to perform a reasonable inquiry or raise concerns to Ernst & Young, the SEC stated.
Ernst & Young, Hartford, Kamienski and Brehl consented to the SEC’s order without admitting or denying the findings. Ernst & Young agreed to pay $4.366 million in monetary sanctions for the violation, and Hartford and Brehl agreed to pay penalties of $25,000 each. Hartford and Kamienski no longer work at Ersnt & Young, according to the SEC. Both, in addition to Brehl, are suspended from appearing and practicing before the SEC as accountants, including not participating in financial reporting or audits of public companies. They may reapply for restatement.
Written by Amy Baxter