Key Takeaways:

  • Audit firm BF Borgers has agreed to pay a $12 million civil penalty to settle U.S. Securities and Exchange Commission (SEC) charges of massive fraud through the false auditing of client financial statements, the agency said on Friday.
  • According to the SEC's order, BF Borgers' misconduct affected at least 1,625 public filings and disclosures between January 2021 and June 2023, including falsely representing to clients that its work would comply with Public Company Accounting Oversight Board (PCAOB) standards and fabricating audit documents to make its work appear compliant with those standards. The agency also said the firm falsely stated in audit reports included in more than 500 SEC filings that its audits met PCAOB standards.
  • Among other companies, BF Borgers served Trump Media & Technology Group, which disclosed in a March SEC filing that it was a client of the audit firm. Trump Media, majority-owned by former President Donald Trump, was not mentioned in the SEC's order.

Deep Dive:

The SEC charged Colorado-based BF Borgers and its owner, Benjamin F. Borgers, with engaging in improper professional conduct and violating the anti-fraud, record-keeping, and other provisions of federal securities laws.

As part of the settlement, the owner agreed to pay a $2 million civil penalty, the SEC said. Additionally, both he and the firm agreed to an immediate and permanent suspension from appearing and practicing before the Commission as accountants.

"Ben Borgers and his audit firm, BF Borgers, were responsible for one of the most widespread gatekeeper failures in financial markets," Gurbir Grewal, director of the SEC's enforcement division, said in a press release. "Through their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate noncompliant audits and reviews into more than 1,500 filings with the Commission, but they also undermined market trust and confidence."

According to SEC data, of the 369 BF Borgers clients whose filings from January 2021 to June 2023 incorporated BF Borgers' audits and reviews, at least 75% incorporated audits that did not meet PCAOB standards.

Borgers and his firm did not immediately respond to requests for comment. The press release said they consented to the SEC's order without admitting or denying its findings.

The SEC said the firm failed to adequately supervise and review the work of teams performing audits and reviews; failed to properly prepare and maintain audit documentation, known as "work papers"; and failed to obtain "engagement quality reviews," without which audit firms may not issue audit reports.

According to the SEC's order, at Borgers' direction, firm employees copied work papers from prior audits performed for clients, changed only the relevant dates, and then presented them as work papers for the current audit period. The agency said this caused the firm's work papers to falsely record work that was not performed.

These work papers often recorded purported planning meetings—which were supposed to discuss client business and consider potential risk areas—that never actually occurred, and falsely claimed that Borgers, as engagement partner and engagement quality reviewer, had reviewed and approved the work.

The settlement comes as the PCAOB has stepped up enforcement, following calls by SEC Chair Gary Gensler for it to strengthen oversight of accounting firms that audit public companies.

Last month, the PCAOB fined KPMG Netherlands and its former head of audit operations $25 million—the largest fine ever imposed by the audit regulator since its founding in 2002—and sanctioned them for alleged violations of quality control standards related to cheating and answer-sharing in the firm's internal training exams.