Accounting firm Friedman will pay more than $1.5 million to settle charges it failed to comply with the standards of the Public Company Accounting Oversight Board (PCAOB) while auditing two companies, the Securities and Exchange Commission (SEC) announced Friday.
Friedman exhibited improper conduct while auditing the companies, including iFresh for fiscal years 2017-20, the SEC alleged in its order. The second firm, unnamed by the agency, was audited by Friedman for fiscal years 2016-20.
The SEC previously charged iFresh, a wholesale grocery business with retail stores in Florida, Massachusetts, and New York, with repeatedly filing materially inaccurate financial statements. iFresh and its chief executive officer, Long Deng, engaged in undisclosed transactions with entities controlled by Deng or that were owned by Deng’s brother, the agency alleged.
Friedman failed to recognize red flags that pointed to iFresh engaging in these alleged transactions, the SEC stated.
The accounting firm didn’t perform procedures designed to identify related-party transactions or gather sufficient audit evidence, the SEC added. Friedman stated it followed PCAOB standards while auditing iFresh and the other company but had not, the agency alleged.
iFresh is a wholly owned subsidiary of E-Compass Acquisition Corp., a special purpose acquisition company (SPAC). iFresh became a publicly traded company after E-Compass merged with NYM Holding through a reverse merger.
Friedman also didn’t exercise professional skepticism when auditing the unnamed public company, which also engaged in related-party transactions, the SEC found. Friedman didn’t gather the audit evidence warranted, given the multiple transactions and relationships it encountered during its audit, the SEC said.
Friedman “did not design and implement an adequate system of quality control,” the SEC alleged. As a result, the firm engaged in improper professional conduct as described in the Securities Exchange Act.
Friedman agreed to pay a penalty of $1 million, restitution of $524,138, and prejudgment interest of $40,574. The firm was also censured.
Friedman neither admitted nor denied the SEC’s charges agreeing to settle.
Friedman completed its merger with Marcum earlier this month and is now Marcum. Marcum did not reply to a request for comment.