“An overseas affiliate of the U.S.’s sixth-largest accounting firm has settled with the Securities and Exchange Commission for its alleged fraud in the audits of now-delisted company ACLN Ltd., whose collapse this year cost investors roughly $700 million,” writes Cassell Bryan-Low in the Wall Street Journal today.

“Announcement of the settlement accompanied the filing of a civil complaint against the audit firm as well as ACLN. The action is the latest legal issue involving global accounting firm BDO International, Brussels, whose U.S. arm settled federal criminal charges earlier this year and remains under federal scrutiny for selling tax-minimization schemes.”

“The SEC complaint filed in U.S. District Court for the Southern District of New York names BDO’s affiliate in Cyprus as a defendant, as well as the senior partner and a manager in that member firm who audited ACLN’s financial statements. The SEC charged the auditors participated in the fraud by failing to conduct even the most basic audit procedures, such as looking at bank balances or confirming the existence of customers.”

“‘If they had done their job, it is likely the fraud would have been prevented,’ said Paul Berger, an associate director in the SEC’s enforcement division in Washington. The ability to find auditors to sign off on the financial results was critical to the fraud, the SEC added.”

“BDO Cyprus and the two partners have agreed to settle without admitting or denying wrongdoing, the SEC said. In addition, the audit firm will hand over $62,196 in fees and interest. The SEC, working in conjunction with counterparts overseas, has frozen about $45 million of ACLN’s bank accounts in Denmark, the Netherlands, Luxembourg and Monaco, which the SEC will seek to distribute to shareholders.”

“BDO International couldn’t be reached for comment, and a lawyer representing BDO Cyprus declined to comment until he was able to reach his client. A spokesman for BDO Seidman LLP, the U.S. arm, said the Cyprus affiliate was ‘a distinct legal entity’ from the U.S. partnership. He also said there was ‘no correlation’ between the SEC’s action against that affiliate and the recent issues facing the U.S. unit.”