A Marcum partner was accused of violating standards of the Public Company Accounting Oversight Board (PCAOB) when he took a client’s false representations at face value during an audit without seeking more information.

Alan Markowitz will face a Securities and Exchange Commission (SEC) administrative proceeding regarding his conduct as Marcum’s lead engagement partner on the audits of telecommunications firm FTE Networks in 2016 and 2017.

The SEC oversees the PCAOB.

The SEC alleged Markowitz violated PCAOB standards in conducting the audits of FTE when he failed to act with due professional care, properly address assessed risks, obtain sufficient appropriate audit evidence, and evaluate audit results. In approving both audits of FTE’s finances, Markowitz failed to exercise professional skepticism and “knew or should have known there was insufficient evidence or support for the unbilled receivables, miscellaneous receivables, notes payable, and equity,” the proceeding said.

When he was presented with evidence that contradicted management’s representations on the notes and equity transactions, he failed to insist on obtaining copies of the notes as part of the audit, the SEC said. Because of this, Markowitz allegedly caused Marcum to violate Regulation S-X when it certified the audit in accordance with PCAOB standards.

In addition, Markowitz “failed to perform procedures to substantiate or reconcile those representations with contradictory evidence,” the SEC said.

In 2021, two executives at FTE were charged with accounting fraud by the SEC and the Department of Justice (DOJ). Former Chief Executive Michael Palleschi and former Chief Financial Officer David Lethem allegedly carried out a nearly $23 million convertible notes fraud, in addition to recognizing more than $13 million in fraudulent revenue. The pair provided auditors with fake convertible notes from their lenders, fraudulent resolutions from FTE’s board of directors, and forged the signature of a representative of FTE’s transfer agent, among other misrepresentations, according to the DOJ.

The SEC ordered a public hearing be held within 30 to 60 days to determine whether Markowitz should be ordered to cease and desist from future violations, pay a civil penalty, and/or agree to other remedial actions.

Neither Markowitz nor Marcum returned a request for comment.