SEC Charges Audit Firm Sherb & Co. LLP and Four of its Auditors for Audit Failures of China-based Companies

In the Matter of Sherb & Co., LLP, et al., Admin Proc. No. 3-15609.  On November 6, 2013, the SEC announced the filing of a settled administrative proceeding against Sherb & Co. LLP, and four of its auditors, Steven J. Sherb, Christopher A. Valleau, Mark Mycio, and Steven N. Epstein.  The charges stem from their involvement in the failed audits of three China-based companies publicly traded in the U.S., including China Sky One Medical Inc., which the SEC charged with fraud.  According to the SEC’s order instituting settled administrative proceedings (“OIP”), the flawed audits involved China Sky One Medical, China Education Alliance Inc., and Wowjoint Holdings Ltd.  Sherb, Valleau, Mycio, and Epstein were all involved in audits that they failed to properly plan and execute the audits.  In addition, the auditors failed to obtain sufficient evidence related to sales, revenue, or bank balances.  According to the OIP, the auditors also ignored obvious warning signs and did not exercise sufficient professional skepticism.

The firm and the four auditors agreed to settle the SEC’s case without admitting or denying the charges.  They agreed to be barred from practicing as accountants on behalf of any publicly traded company or other entity regulated by the SEC.  The firm agreed to pay a $75,000 penalty.  The OIP finds that Sherb & Co., Sherb, Valleau, Mycio, and Epstein violated Rule 102(e)(1)(ii) of the SEC’s Rules of Practice and Section 4(C) of the Exchange Act.  The SEC’s order also finds that Sherb & Co. and Mycio violated Exchange Act Section 10A(b)(1).  Sherb & Co. and Mycio are ordered to cease and desist from committing or causing any violations of Section 10A(b)(1) of the Exchange Act.  Sherb, Valleau, and Mycio are prohibited from practicing before the SEC as an accountant for at least five years, and Epstein is barred for at least three years.

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