Ernst & Young to pay
Ernst & Young has removed its auditors who were found guilty by the SEC Reuters

Ernst & Young (EY) has agreed to pay a fine of $9.3m (£7.13m) imposed on it by the US regulator Securities and Exchange Commission (SEC). The London-based professional services firm has been charged for not keeping a check on the "inappropriately close" relationships its former auditors had with its clients.

In a statement, the SEC said that there were two separate instances where EY had failed in their auditor independence checks. This was a process that EY had to follow to ensure that its employees do not have familial, employment or financial relationships with its clients that could impair the firm's independence and prevent it from scrutinising a client's books as thoroughly as they should.

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The US regulator said there were two separate instances where EY's auditors had become romantically involved with the staff of its clients. The first case was that of EY partner Gregory Bednar in Chicago. He was found to have become too close to the CFO of a client, which EY had considered as a "troubled account".

Bednar was found to have spent more than $100,000 on the executive. They were also found to have stayed overnight at each other's homes and exchanged many personal text messages during the audit period.

In another separate case, EY partner Pamela Hartford was found to have maintained a close relationship with a financial executive at EY client Ventas, during an audit period. The SEC also alleged that this relationship was known to Hartford's supervisor Michael Kamienski, but no inquiry or concerns were raised internally.

The SEC said that EY had failed to take appropriate action in both these cases. "Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors," Andrew Ceresney, director of the SEC's division of enforcement said.

An EY spokesman, according to the Financial Times responded to the SEC judgment by saying that the auditors involved "violated multiple EY policies, hid their conduct and behaved in a way that was antithetical to EY's global code of conduct, culture, values, policies, and training [ ...] All have been separated from our organisation".