The Securities and Exchange Commission (SEC) is considering whether to pursue enforcement against a certified public accountant for his alleged role in an accounting fraud case the agency brought against biotech company MiMedx Group in 2019.
Paul Chancey is the subject of an administrative proceeding the SEC filed Tuesday seeking to determine whether the agency should order him to cease and desist and/or pay a civil penalty for improper professional conduct. Chancey, a partner at Cherry Bekaert since 2006, was the lead engagement partner on the audits and interim reviews of MiMedx’s financial statements from at least the first quarter of 2013 through the second quarter of 2017, according to the SEC’s order.
MiMedx and three of its former top executives were charged with defrauding investors by misstating the company’s revenue and attempting to cover up their misconduct in November 2019. MiMedx agreed to pay a $1.5 million civil penalty in settling the case.
As lead engagement partner, Chancey had “responsibility for the conduct of the audits, including planning, supervising team members, and ensuring compliance with PCAOB (Public Company Accounting Oversight Board) standards,” the SEC explained. He allegedly failed in this role by ignoring evidence MiMedx was improperly booking revenue from a consignment deal made with one of its largest distributors in its 2015 and 2016 financial statements.
Chancey instead “improperly relied on MiMedx executives’ false representations that revenue recognition was appropriate,” the SEC stated. This occurred despite a former controller at MiMedx flagging the consignment nature of the transactions for the 2015 audit. Chancey’s actions violated PCAOB standards to act with due professional care and obtain sufficient audit evidence and caused Cherry Bekaert to violate Regulation S-X by certifying MiMedx’s fraudulent financial statements, according to the SEC.
MiMedx would later restate its 2015 and 2016 financial statements.
The SEC will move forward with a public hearing reviewing its findings and Chancey’s response to the allegations before determining if remedial actions are appropriate in the case.
Editor’s note: Chancey had a motion to postpone the proceeding approved by the SEC in a filing Sept. 10, as a stay entered in a related case “prevents him from obtaining discovery in this proceeding relevant to his defense of the proceeding”