Deloitte & Touche LLP
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19202 / April 26, 2005
Accounting and Auditing Enforcement
Release No. 2236 / April 26, 2005
Securities and Exchange Commission v. Deloitte & Touche LLP, 05 CV 4119 (April 26, 2005 S.D.N.Y.)
SEC Brings Settled Action Against Deloitte & Touche LLP and Obtains $25 Million Civil Penalty
On April 26, 2005, the Securities and Exchange Commission filed a settled action for a civil money penalty against Deloitte & Touche LLP ("Deloitte") for committing violations of Section 10A(a) of the Securities and Exchange Act of 1934 ("Exchange Act") in its audit of Adelphia Communications Corporation ("Adelphia") for the year ended December 31, 2000. The SEC alleged that Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia. Without admitting or denying the allegations in the Commission's complaint, Deloitte agreed to pay a $25 million penalty, which will be deposited into a fund to compensate victims of Adelphia's fraud. The district court settlement is subject to court approval.
In a related administrative proceeding, the Commission censured Deloitte for improper professional conduct under Rule 102(e) of the Commission's Rules of Practice, and Deloitte agreed to pay an additional $25 million into a fund to compensate victims of Adelphia's fraud, making a total of $50 million to be paid to victims of Adelphia's fraud. Deloitte also agreed to substantive undertakings designed to address its audit of high-risk clients in the future.
The Commission's Complaint
The Commission's complaint against Deloitte alleges that, during Deloitte's audit of Adelphia's financial statements for the year ended December 31, 2000, Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia and failed to implement audit procedures designed to identify material related party transactions or related party transactions otherwise requiring disclosure. Among other things, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 million, improperly netted related party receivables and payables between Adelphia and related parties, and failed to disclose the extent of related party transactions.
The Commission's complaint charges Deloitte with violating Section 10A(a) of the Exchange Act.
The Settlement
Deloitte has consented to the entry of an order requiring the firm to pay a civil money penalty pursuant to Section 21(d)(3) of the Exchange Act of $25 million and disgorgement of $1, which will be deposited into a fund to compensate victims of Adelphia's fraud. The Commission also censured Deloitte for improper professional conduct in a separate administrative proceeding brought under Rule 102(e) of the Commission's Rules of Practice, and Deloitte agreed to pay $25 million, which will also be deposited into a fund to compensate victims of Adelphia's fraud. In addition to the $50 million in total payments to Adelphia investors, Deloitte agreed in the administrative proceeding to substantive undertakings designed to address its audit of high-risk clients in the future.
Last Reviewed or Updated: June 27, 2023