Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the NYSSCPA Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Goldberg’s performance of professional services in connection with the audit of an SEC registrant (the “Company”).
After an investigation, Mr. Goldberg was charged with violating the following rules of the AICPA and the NYSSCPA’s Codes of Professional Conduct:
Rule 202 – Compliance with Standards
The auditor failed to document how he overcame the presumption that an auditor will request the confirmation of accounts receivable during an audit. (AU §339; SAS No. 41)
Rule 203 – Accounting Principles
1. With respect to the Company’s reverse merger (FASB Accounting Standards Codification
a. The original financial statements incorrectly used the fiscal year beginning balances of the
legal acquirer instead of the beginning balances of the accounting acquirer;
b. In the original financial statements, the Company incorrectly presented the comparative
2007 statement of operations of the legal acquirer instead of the accounting acquirer;
c. In the original financial statements, the Company incorrectly failed to present the
common stock issued during the reverse merger and the 1-for-15 reverse stock split retroactively.
2. In the original financial statements, the Company incorrectly expensed the fair value of stock
purchase warrants that accompanied $1,500,000 of private placement promissory notes that
were issued during the fourth quarter of fiscal year 2008. (FASB ASC 470-20-25-2);
3. In the original financial statements, the Company failed to record 2008 compensation expense for
the fair value of stock options that were issued during the second quarter of 2008 and were
scheduled to vest during 2009. (FASB ASC 718-10-35-2)
Rule 501, Interpretation 5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
1. The balance sheet that accompanied the Company’s original Form 10-K failed to include a 2007
comparative balance sheet. (CFR Title 17, “Commodity and Security Exchanges”, §210.3-01)
2. During fiscal year 2008 the Company incorrectly recorded an expense for warrants for the
purchase of the Company’s common stock that were issued as compensation for fees associated
with a February 2008 private placement of 2,000,000 shares of the Company’s common stock. The
fair value of the warrants should have been deferred and charged against the gross proceeds of
the offering. (SEC Staff Accounting Bulletin Codification, Topic 5A).
In consideration of the ECA forgoing further investigation of Mr. Goldberg’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Goldberg agrees as follows:
a. To waive his rights to a hearing under AICPA bylaws section 7.4 and Article XII, Section 14
of the New York State Society of CPA’s bylaws.
b. To neither admit nor deny the above specified charges.
c. To comply immediately with professional standards applicable to the professional services he
performs, and to submit evidence of such compliance.
d. To be suspended by the AICPA and the New York State Society of CPAs for a period of
e. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this
f. To comply with directive 2 of his July 27, 2009 letter of required corrective action which required
him to complete the following continuing professional education (CPE) courses no later than
July 27, 2011 and to provide evidence of such completion (e.g., attendance sheets, course
completion certificates, etc.):
FASB/APB Update and Review 40 hours
SEC Reporting 25 hours
Annual Public Company Update: SEC, PCAOB
& AICPA Developments 10 hours
AICPA’s Comprehensive Ethics Course
(Self-study – with a score of 90% or better) 8 hours
Total 83 hours
g. To comply with directive c. above to hire an outside party, acceptable to the ECA, to perform
a preissuance review of the reports, financial statements, and working papers on all audit
engagements performed by him for a period of one year from the date the preissuance reviewer
is approved by the ECA. A preissuance review must also be performed on two review
engagements to be selected in advance by the Subcommittee. He will provide the name(s) of those
he has selected to perform the preissuance reviews within 30 days of the effective date of this letter
for the Subcommittee’s approval. Also, within 30 days of accepting this letter he will submit to the
Subcommittee a list of the review engagements that he expects to perform during the subsequent
12-month period. The following information should be included regarding the engagements listed:
total number of hours expected to be spent on each engagement, his expected hours on each
engagement, type of organization, and whether it was an initial engagement. The Subcommittee
will select the two review engagements subject to pre-issuance review. In addition, he agrees to
permit the outside party to report quarterly to the Subcommittee on his progress in complying with
the terms of this agreement as stated herein to comply with professional standards. The first such
report is due 120 days after the preissuance reviewer has been approved and each successive
report will be due every 90 days thereafter. The preissuance reviews would be performed at his
expense. The preissuance review period may be extended by the ECA if the ECA decides,
based on these reports, that his audit work has been unsatisfactory.
h. In further compliance with directive c. above, to submit no later than six months after the completion
of the preissuance review period in directive g. above, a list of the highest level (audit, review,
compilation) of engagements that he performed during the six month period following completion of
the preissuance review period. The following information should be included regarding the
engagements listed: his role on the engagements, the number of hours spent on the engagement; level
of professional services rendered; type of organization; and if it was an initial engagement. The ECA
will select one of these engagements for review. He will be informed of this selection and will be
asked to submit a copy of his report, the financial statements, and working papers related to that
engagement for review by the ECA.
After an initial review of such report, financial statements, and working papers, the ECA may decide
that he has substantially complied with professional standards and close this matter. Or, the ECA
may decide that an ethics investigation of the engagement submitted is warranted. If at the conclusion
of the investigation, the ECA finds that professional standards have in fact been violated, the ECA
may refer the matter to the trial board for a hearing or take such other action as it deems appropriate.
i. To inform the ECA of any changes in his engagement responsibilities or the composition of his
professional practice, in which case the pre-issuance review period and the period to select a follow
up workproduct may be extended.
j. To be prohibited from performing peer reviews until all directives outlined in this agreement are met.
This prohibition will be communicated to his peer review oversight agency.
k. That the ECA will share this settlement agreement with his firm’s Peer Review Administering Entity.
l. That the ECA shall monitor his compliance with the terms of this settlement agreement and initiate an
investigation where the ECA finds there has been noncompliance.