The US Securities and Exchange Commission (SEC) has filed fraud charges against a staffing company chairman and majority shareholder, alleging he misused company funds and misled auditors. 

This week SEC filed a complaint against Stephen Pence of General Employment Enterprises in a Manhattan federal court, seeking permanent injunctions, repayment of ill-gotten gains plus prejudgement interest and penalties, and an officer-and-director bar.

According to a SEC statement, Pence is a former US attorney and a former lieutenant governor of Kentucky. General Employment operates in the engineering, IT and accounting sectors.

It also charged audit firm BDO USA with dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of General Employment Enterprises, as well as charging five of its partners for their roles in the deficient audits. 

According to the SEC statement, near the end of BDO’s 2009 audit of the staffing firm, it was advised by the company that a $2.3m (£1.5m) investment had not been paid out on the investment maturity date. The investment was with a bank, which BDO later learned had no record of the investment. 

The sum represented about half of the company’s assets at the time.

BDO then received multiple conflicting stories from company management and board members, followed by a series of deposits worth $2.3m from three entities unrelated to the bank. One was purportedly linked to Pence. 

BDO demanded an independent investigation but later, despite no reasonable explanation from the company, withdrew the demand and issued its unqualified opinions on General Employment’s financial statements for 2009 and 2010.

The SEC alleges Pence misled auditors and investors while acting as a front man for a convicted felon who was actively scheming to misuse company funds.

It says he was acting as an agent for convicted felon Wilbur Huff, who had funded Pence’s purported acquisition of a majority stake in the company.

Huff has since received a prison sentence in a criminal action related to his intricate involvement in a wide-ranging conspiracy, which included misappropriating the $2.3m in question from General Employment.

The SEC separately charged former General Employment chief executives Ronald Heineman and Salvatore Zizza with making misleading statements and omissions to BDO.

Without admitting or denying the findings, they consented to SEC orders requiring them to each pay $150k penalties.

Without admitting or denying the SEC’s findings, BDO staff Sean Henaghan, John Rainis, James Gerace, Leland Graul and Wendy Hambleton agreed to be suspended from practising public company accounting for varying periods. Henaghan agreed to pay a $30k penalty, Rainis agreed to pay a $15k penalty, and Gerace, Graul and Hambleton each agreed to pay $10k penalties.

BDO agreed to admit wrongdoing, pay about $600k, the amount of its ill-gotten gains plus interest, and a $1.5m penalty.

Litigation continues against Pence. According to the company website, Pence is no longer on the board.

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