The former head of Deloitte & Touche's Buffalo office, now an executive at Buffalo-based Computer Task Group, oversaw the audit of Adelphia Communications that prompted civil charges against the accounting firm Tuesday by federal regulators.
The U.S. Securities and Exchange Commission charged that Deloitte & Touche LLP should have caught misstatements in Adelphia's annual report for 2000, its last before its bankruptcy in mid-2002. The charges came in a lawsuit filed in federal district court in Manhattan and in an SEC administrative action.
Without admitting or denying wrongdoing, Deloitte agreed to pay $50 million -- a record by an accounting firm in an SEC action -- to settle the charges. It said management at Adelphia misled auditors.
Adelphia founder John Rigas and his son Timothy, the cable television company's chief financial officer, await sentencing for fraud on June 1.
Deloitte's Pittsburgh office had primary responsibility for auditing Adelphia, which was considered a high-risk audit client, the SEC lawsuit said. However, for the year 2000, the Buffalo office shared responsibility for the audit, Deloitte spokeswoman Deborah Harrington confirmed.
Gregory M. Dearlove, formerly the partner in charge of Deloitte's Buffalo office, was the "signing partner" responsible for overseeing the audit of Adelphia's 2000 financial report, he confirmed. Dearlove also attended Adelphia's stockholder meeting following publication of the report in 2001 to represent the accounting firm.
"I'm not uncomfortable with the way the audit was conducted," he said in an interview Tuesday. "The audit was conducted in a proper way and reached a proper conclusion."
Dearlove left the accounting firm in September of 2001, about six months after the Adelphia audit was completed, to become chief financial officer at Computer Task Group, a Buffalo-based computer services company. The departure, a positive career step, was unrelated to Adelphia's audit, he said.
Dearlove was not named in the SEC's lawsuit or in its administrative order. However, SEC staff have said that Dearlove could be a subject of an administrative action at some point, according to his lawyer, Joseph V. Sedita.
Helen Glotzer, associate director of the SEC Northeast Region office, said the agency's investigation is continuing. She declined to comment on whether the investigation involves Dearlove or other individuals.
The SEC's action against Deloitte comes a day after the announcement of the settlement of civil charges against Adelphia and the Rigas family for $720 million. That settlement, and the payment from Deloitte, will go into a fund to compensate victims of Adelphia fraud, the SEC said.
Adelphia went bankrupt in mid-2002 after disclosures that the Rigas family had used Adelphia-backed loans to buy company stock.
In its lawsuit, the SEC said Deloitte signed off on an annual report that excluded $1.6 billion in debt from the balance sheet; failed to identify "related-party" transactions with the company, and overstated stockholder equity by $368 million.
"Auditors are the front line of oversight of public company financial statements," SEC Northeast Regional Director Mark K. Schonfeld said. "When they fail to do their job, the result can be tragic for investors."
Dearlove disputed the SEC's allegations and defended the audit that he supervised. Loans jointly backed by Adelphia and the Rigas family were correctly disclosed in the company's regulatory filings, he said. He wasn't aware that any such "co-borrowings" were being used by buy stock, he said.
Heading the audit of Adelphia for the first and only time, Dearlove led a team of 30 workers from Deloitte's Pittsburgh office, he said. In early 2001, the Deloitte team worked in temporary offices in the basement of a movie theater near Adelphia's then-headquarters in Coudersport, Pa.
The SEC's charges against Deloitte should have no bearing on his present job as chief financial officer at Computer Task Group, Dearlove said. "An allegation is an allegation," he said.
Harrington noted that the company didn't admit the SEC's charges. However, the firm is strengthening its audit practices, especially concerning clients identified as high-risk because of aggressive accounting practices or other characteristics, she said.
Jerry Zremski of The News Washington Bureau contributed to this report.