Release: 5085-05 (CFTC Docket No. 04-29)
UNITED STATES COMMODITY FUTURES TRADING COMMISSION SETTLES CHARGES AGAINST AUDITOR G. VICTOR JOHNSON AND THE ACCOUNTING FIRM OF ALTSCHULER, MELVOIN & GLASSER LLP FOR AUDITING FAILURES
Respondents to Pay $350,000 in Fines and Restitution, and Repay Fees
WASHINGTON, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) today announced the issuance of an order settling an enforcement action against G. Victor Johnson, a certified public accountant (CPA) licensed in Illinois, and the accounting firm of Altschuler, Melvoin & Glasser LLP (AMG), an Illinois limited liability partnership located in Chicago, Illinois, arising from audits AMG performed of a commodity pool that failed to detect a fraud perpetrated on investors by the pool’s operator.
The CFTC’s complaint, In the Matter of G. Victor Johnson and Altschuler, Melvoin & Glasser LLP, CFTC Docket 04-29 (September 30, 2004) (see CFTC Press Release 5000-04 September 30, 2004), alleged that Johnson performed audits of a commodity futures pool operated by Melrose Asset Management (Melrose), a registered commodity pool operator, for the years ending December 31, 2000, and December 31, 2001, that were not performed in accordance with generally accepted auditing standards (GAAS). The complaint further alleged that Johnson failed to exercise due professional care in conducting the audits, and that AMG is liable for Johnson’s violations.
The CFTC’s action relates to earlier federal antifraud charges the CFTC brought against Melrose and its chief executive officer, John Martin Lofgren, formerly of Kenilworth, Illinois, alleging that Lofgren had misappropriated at least $1.4 million in customer funds and had issued false statements to investors. CFTC v. Lofgren and Melrose Asset Management, No. 02-C-6222 (N.D.Ill.) (See CFTC News Release 4695-02, September 4, 2002). That action resulted in the court’s issuance of a consent order on August 30, 2004, imposing a permanent injunction against Lofgren and Melrose, ordering them to pay $1.8 million in restitution to victims of the fraud, and requiring disgorgement of $3.7 million in ill-gotten gains. On February 23, 2005, pursuant to a plea agreement, Lofgren was sentenced to 33 months imprisonment, followed by three years’ supervised release.
According to the CFTC’s complaint against Johnson and AMG, Johnson performed the audits of Melrose while Lofgren’s violations were taking place. The complaint charged that AMG issued unqualified auditor’s reports representing that the pool’s financial statements were free from material misstatement, when that was not the case. The Commission’s complaint alleged that Johnson and AMG’s audit team reviewed and tested certain financial transactions concerning misappropriations by Lofgren, but failed to obtain sufficient competent evidence of the transactions.
Under the terms of the settlements announced today, Johnson and AMG will pay $200,000 to the commodity pool investors defrauded by Melrose and Lofgren, and repay all audit fees earned from the audit engagements, which will also go to victims of the fraud. Johnson and AMG also are ordered to pay a civil penalty of $150,000. In addition, Johnson will not participate in any audit of any commodity pool or Commission registrant in certain capacities until after December 31, 2005, and AMG will provide training in fraud examination and detection to staff that participate in such audits, as well as review portions of its audit programs that were implicated in the alleged audit failures and report to the CFTC on its review.
The following CFTC staff were responsible for this action: David A. Terrell, Elizabeth M. Streit, Hugh J. Rooney, Scott R. Williamson and Rosemary Hollinger of the Division of Enforcement, and Walter Maksymec of the Division of Clearing & Intermediary Oversight.
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