SEC disciplines audit firm, partner over valuations audit

Regulator settled with the accused over allegedly mishandled audits of investment valuations.

The Securities and Exchange Commission announced that it’s settling civil charges with auditor Spicer Jeffries and one of its partners over audits of two private funds that it said were mishandled.

The regulator said the Denver-based auditor consented to a censure, and committed to hire an outside consultant that will review its policies and procedures for audits, quality controls and reviews. Additionally, Sean Tafaro, a partner at the auditor, is suspended from practicing or appearing before the commission as an accountant, with the option to reapply after one year.

The SEC issued findings stemming from 2018 fiscal year audits of two private funds managed by an unnamed Colorado-based adviser.

The audits covered valuations that the adviser calculated for preferred shares in two portfolio companies.

The adviser used a liquidation preference rights multiple ranging from 150 to 200 percent in setting the fair value of the securities, despite no qualifying events triggering those rights, according to the SEC’s order. The commission noted that the adviser did so on the day, or the day after, purchasing the preferred shares.

The SEC also said Tafaro told the adviser in an email he “would have no problem signing an audit opinion” that supported the valuation methodology if there was “careful documentation” explaining why other methods were not given equal weight following consideration of them.

A Spicer Jeffries engagement team that included Tafaro flagged investment valuations as a “significant fraud risk,” the commission added. But it failed to put into action its planned audit approach to respond to such risk, according to the SEC. The commission also claimed the firm and Tafaro failed to get appropriate and sufficient audit evidence, to prepare sufficient audit and to exercise due care and professional skepticism.

The SEC separately found that Tafaro did not adequately supervise the audits and that Spicer Jefferies did not adhere to standards for quality control.

Spicer Jeffries and Tafaro did not admit or deny the findings.

Tafaro and Robert Yurglich, managing partner at Spicer Jeffries, did not respond to requests for comment from Private Funds CFO.