Investors in Universal American Corp. have no idea that more than three years worth of the company’s financial statements were the likely subject of auditor independence violations that led to charges by the Securities and Exchange Commission and a $5 million settlement with Ernst & Young and a former engagement partner.

In its administrative order unveiling the allegations and settlement with EY and former partner Gregory Bednar, the SEC does not identify the company whose audit engagement Bednar led, where he cultivated a close personal relationship with the CFO that led to more than $100,000 in travel and entertainment expenses from 2012 through early 2015. It was one of two cases recently settled by EY involving allegations of auditor independence. Andrew Ceresney, director of enforcement, said during a press briefing that he does not identify parties who are not named in SEC enforcement actions as a matter of policy.

A search with the assistance of Audit Analytics, however, reveals Universal American is the only company whose auditor dismissal fact pattern is consistent with facts revealed in the SEC release in its case against Bednar. Yet the company provides no disclosure that any of its audits may have been tainted by independence violations or would require fresh audits.

Universal American issued a Form 8-K in August 2015 indicating it was dismissing EY as its audit firm and hiring Deloitte. The filing provides no cause for the dismissal, except to say the company completed a “competitive process” to determine which audit firm would serve as its independent auditor, and that EY was invited to participate in the process, and did so.

The Universal American 8-K says EY had served as the company’s auditor from 1996 through August 2015. The SEC’s action against Bednar and EY provides the exact same time line for EY’s audit engagement. The SEC order says the company’s CFO worked at an audit firm before serving the company for more than 20 years, then retired in 2015. Universal American announced with its first-quarter results that its CFO, Robert Waegelein, was retiring effective May 31 after 25 years with the company. Wagelein’s online profile shows he worked at KPMG before joining Universal American.

Bednar was assigned to the audit in 2010 and tasked with improving the relationship with the company, the SEC says. He lavished gifts, entertainment, and vacation travel on his CFO contact and his family, and the two even spent the night at one another’s homes. The SEC’s administrative order spends more than two pages listing the various excursions and sporting events. Bednar and the CFO exchanged “hundreds of personal text messages, emails, and voicemails during the auditing periods,” the SEC says, and many of the trips and contacts had no business purpose.

The lack of any discernable disclosure to investors stands in stark contrast to a strikingly similar enforcement action the SEC announced in tandem with the Bednar case, where EY and two former partners, plus the former chief accounting officer of an unnamed public company, settled another batch of auditor independence charges for a combined $4.4 million.

That case involved allegations of a romantic relationship between former EY partner Pamela Hartford and Robert Brehl, the chief accounting officer for a public company that EY was engaged to audit. The SEC also charged and settled with another now-former EY partner, Michael Kamienski, who is accused of having information suggesting an inappropriate relationship between Hartford and Brehl but failing to adequately act on it.

The public company at the center of the Hartford-Brehl relationship, however, was much easier to identify, even though Ceresney declined to name it. Real estate investment trust Ventas disclosed in a Form 8-K that the company had to have financial statements for two years re-audited by a new firm as a result of the independence violation. The new audit by KPMG revealed no accounting anomalies.

Ceresney said he announced the two settlements together because the cases were similar in involving close personal relationships rather than financial relationships, which is more often the cause of auditor independence violations in SEC cases. Both cases involved similar allegations of personal relationships, although the SEC describes only the Hartford relationship as romantic in nature, and both cases yielded similar penalties, both to the firm and to the parties who were charged. Ceresney said he would not discuss charging or penalty decisions.

Pressed with questions on whether investors could rely on the financial statements of companies at the center of the SEC’s independence charges, Ceresney said investor confidence issues are addressed apart from enforcement actions. “Those determinations and the reliance upon those financial statements are determined separately from this action,” he said. “I think whatever disclosures were appropriate in those cases have been made."

At Ventas, investors knew of the violations and were delivered new audits to address them. At Universal American, however, investors know only that the company changed auditors for no specifically stated reason. They also do not know whether audits delivered during the period when the auditor was not independent might be tainted.

The SEC did not respond to a request for verification of Universal American as the company at the center of the Bednar case, nor why two highly similar cases would result in vastly different disclosure outcomes for investors. Universal American also did not respond to a request for comment.

Lynn Turner, former chief accountant at the SEC, says he sees no reason why one company would disclose auditor independence and another not. “The simple answer is that there is no plausible explanation as to differences in disclosure,” he says. Historically, SEC enforcement actions have named companies in which an audit was called into question, he says. “That provided transparent information and disclosures to investors, so they would have that information when voting on auditors.”

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