Outline of Recent SEC Enforcement Actions - the Utah State Bar

CASES INVOLVING ACCOUNTANTS AND AUDITORS
SEC v. Whispering Winds Properties, LLC; LM Beagle Properties, LLC; Karlena, Inc.;
Axis International, Inc.; and Dan Wise aka Danny Wise
Lit. Rel. No. 20987 (April 6, 2009)
http://sec.gov/litigation/litreleases/2009/lr20987.htm
The SEC obtained emergency relief against a former Arizona certified public accountant
for targeting his accounting clients in a multi-million dollar real estate investment scheme. The
complaint alleges Wise solicited his tax and accounting clients, and their friends and family,
encouraging them to borrow money to invest with him. The complaint further alleges that, from
July 2001 to January 2009, Wise raised more than $67 million from approximately 125 investors
by touting his 10 to 15 years of experience in real estate investments and luring investors with
promises of lucrative annual returns ranging from 12% to 22%.
According to the SEC, Wise claimed to use investor funds to make short-term real estate
loans that would be fully collateralized and assured investors that they could obtain their
principal anytime on 24 to 48 hours notice. However, Wise apparently never funded real estate
loans, never paid the promised returns to investors, and never honored investors’ redemption
requests.
The defendants are charged with violating the antifraud provisions of Section 17(a) of the
Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The SEC is seeking, in addition to the emergency relief, preliminary and permanent
injunctions, disgorgement with prejudgment interest, and civil penalties.
SEC V. David G. Friehling, C.P.A and Friehling & Horowitz, CPA's, P.C.
Lit. Rel. No. 20959 (March 18, 2009)
Accounting and Auditing Rel. No. 2992 (March 18, 2009)
http://sec.gov/litigation/litreleases/2009/lr20959.htm
The SEC charged the auditors of Bernard Madoff's broker-dealer firm with committing
securities fraud by falsely representing that they had conducted legitimate audits, when in fact
they had not. The complaint alleges that from 1991 through 2008, the defendants enabled
Madoff's Ponzi scheme by falsely stating, in annual audit reports, that financial statement audits
were conducted pursuant to Generally Accepted Auditing Standards (GAAS), including the
requirements to maintain auditor independence and perform audit procedures regarding custody
of securities.
Through their audit opinions, the defendants made representations that Bernard L.
Madoff Investment Securities LLC (BMIS) financial statements were presented in conformity
with Generally Accepted Accounting Principles (GAAP) and that there were no material
deficiencies in BMIS’ internal control procedures. According to the complaint, the defendants
knew that BMIS regularly distributed the annual audit reports to its customers and that the
reports were filed with the SEC and other regulators.
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