On September 19, 2016, the SEC filed an Order Instituting Public Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Ernst & Young, Robert J. Brehl, CPA (“Brehl”), Pamela J. Hartford, CPA (“Hartford”), and Michael T. Kamienski, CPA (“Kamienski”) (the “Ernst & Young Order”). The Ernst & Young Order was one of the first two enforcement actions ever filed by the SEC for auditor independence failures due to improper personal relationships between auditors and their clients’ employees.
Brehl served as Chief Accounting Officer of one of Ernst & Young’s public company clients (the “Issuer”) from January 2006 through July 2014, and is a certified public accountant (“CPA”) who resides in Kentucky. Hartford initially served as the engagement partner and then as the coordinating partner on the Ernst & Young engagement team that provided audit and review services to the Issuer (the “Engagement Team”) until her termination on July 7, 2014. Kamienski served as the coordinating partner on the Engagement Team from 2009 to 2013. Beginning in December 2013, he also served as Ernst & Young’s Global Real Estate, Hospitality & Construction Assurance Leader, and then, in July 2014, as Ernst & Young’s Central Region Assurance Real Estate Market Segment Leader until his resignation in April 18, 2016.
According to the Ernst & Young Order, between March 2012 and June 2014, Hartford and Brehl “maintained a close personal and romantic relationship.” Specifically, “[t]heir relationship was marked by a high level of personal intimacy, affection and friendship, near daily communications about personal and romantic matters (as well as work-related matters), and the occasional exchange of gifts of minimal value on holidays such as Valentine’s Day and birthdays.” Further, from early 2013 through June 2014, Kamienski “was aware of facts suggesting a possible romantic relationship between Hartford and Brehl” and “should have identified those facts as red flags but did not” and failed to “raise concerns internally to [Ernst & Young’s] U.S. Independence group.” During this time, Ernst & Young continued to maintain that it was an independent auditor on the Issuer’s financial statements and filings with the SEC.