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KPMG LLP will pay more than $6.2 million to resolve allegations that it didn’t adequately audit an oil and gas company’s financial statements, the SEC said Aug. 15 In re KPMG LLP , S.E.C., Admin. Proc. File No. 3-18110, 8/15/17 .
The accounting giant in 2011 missed evidence that Miller Energy Resources Inc. inflated the value of assets the company acquired by more than $400 million, misleading investors, according to a Securities and Exchange Commission order. KPMG and its partner in charge of the audit, John Riordan, “failed to exercise the requisite degree of due professional care and skepticism” in reviewing records on the oil and gas interests Miller Energy purchased in Alaska, the agency said.
Before the firm issued its audit report, Riordan told KPMG’s national office about an SEC subpoena seeking information from Miller Energy on the valuation of the Alaska assets, the commission said. KPMG staff, including unnamed senior officials, decided the agency’s investigation didn’t warrant more audit consideration due at least in part to their belief the probe stemmed from a highly critical “hit job” financial blog report that questioned the valuation, the SEC said.
Miller Energy resolved an SEC financial fraud suit based on related alleged misconduct in 2016. The allegedly overstated valuation helped the Knoxville, Tenn.-based penny-stock company get listed on the New York Stock Exchange, where it traded as high as almost $9 per share in 2013, according to the SEC. It filed for Chapter 11 bankruptcy protection in 2015.
“Auditing firms must fully comprehend the industries of their clients,” Walter Jospin, director of the SEC’s Atlanta Regional Office, said in a statement. “KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million were worth a half-billion dollars.”
KPMG and Riordan didn’t admit or deny any wrongdoing.
Riordan will pay $25,000 to settle the claims against him and is barred from practicing before the SEC as an accountant for at least two years.
“KPMG is committed to the highest standards of professionalism, integrity and quality, and we have fully cooperated with our regulators to reach a resolution,” KPMG spokesman Manuel Goncalves said in a statement to Bloomberg BNA.
A lawyer for Riordan wasn’t immediately available to comment.
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