SEC Nails BF Borgers and Ben Borgers – Issuers Must Obtain New Auditors

On May 3, 2024, the Securities and Exchange Commission provided a statement for issuers impacted by its enforcement action against BF Bofgers CPA PC. According to the SEC Action against BF Borgers, approximately 500 issuers used the services of BF Borgers for their audits between January 2021 through June 2023.

On May 3, 2024, the SEC entered an order instituting settled administrative and cease-and-desist proceedings[2] against BF Borgers CPA PC and its sole audit partner Benjamin F. Borgers CPA (individually and together, “BF Borgers”), finding that, among other things, BF Borgers:

• deliberately and systematically failed to conduct audits and quarterly reviews in accordance with applicable Public Company Accounting Oversight Board (“PCAOB”) standards;
• fraudulently issued audit reports that falsely represented that audits had been performed in accordance with PCAOB standards; and
• caused audit clients to violate certain provisions of the Exchange Act and rules thereunder, including Exchange Act Sections 13(a) and 15(d).

The Order denies BF Borgers the privilege of appearing or practicing before the Commission as an accountant. As a result, BF Borgers may not participate in or perform the audit or review of financial information included in Commission filings, issue audit reports included in Commission filings, provide consents with respect to audit reports, or otherwise appear or practice before the Commission.

A significant number of issuers will be impacted by the Order against Borgers.  The SEC statement was issued to assist issuers in complying with their disclosure and reporting obligations in light of the Order involving BF Borgers. We encourage all issuers that have previously engaged BF Borgers as their independent auditor to consider the findings and sanctions discussed in the Order, taking into account their disclosure obligations under the federal securities laws.

The SEC’s  statement for issuers using BF Borgers as an auditor is below:

Form 8-K Item 4.01 (Changes in Registrant’s Certifying Accountant)

Registrants must file an Item 4.01 Form 8-K when BF Borgers resigns or is dismissed. The Form 8-K must be filed within four (4) business days of the resignation or dismissal and include information called for by Item 304 of Regulation S-K. Registrants may indicate that their prior auditor is not currently permitted to appear or practice before the Commission in lieu of including a letter from BF Borgers stating whether it agrees with the Item 304 disclosures.

Exchange Act Reports

Because BF Borgers has been denied the privilege of appearing or practicing before the Commission, issuers that have engaged BF Borgers to audit or review financial information to be included in any Exchange Act filings to be made on or after the date of the Order will need to engage a new qualified, independent, PCAOB-registered public accountant. For example:

• • Form 10-K filings on or after the date of the Order may not include audit reports from BF Borgers. Each fiscal year presented must be audited by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.
  • Form 10-Q filings on or after the date of the Order may not present financial information that has been reviewed by BF Borgers. Each quarterly period presented must be reviewed by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.
  • Form 20-F filings on or after the date of the Order may not include audit reports from BF Borgers. Each fiscal year presented must be audited by a qualified, independent, PCAOB-registered public accountant that is permitted to appear or practice before the Commission.

Exchange Act reports that were filed before the date of the Order do not necessarily need to be amended solely because of the Commission’s entry of the Order. However, issuers should consider whether their filings may need to be amended to address any reporting deficiencies arising from the BF Borgers engagement.

We appreciate that some issuers may encounter difficulties meeting filing deadlines applicable to their Exchange Act reports. We remind issuers of the availability of Exchange Act Rule 12b-25, which provides for a limited extension of the deadline for filing certain Exchange Act reports, for issuers that file a Form 12b-25 no later than one business day after the original due date for the report. We will continue to monitor this situation and encourage those issuers and market participants with questions or concerns to contact the staff.

Securities Act Registration Statements

Issuers are reminded that, at the time of effectiveness, a Securities Act registration statement must comply with the requirements of the Securities Act and the rules and regulations thereunder. In evaluating any request for acceleration of a Securities Act registration statement, the staff must consider the adequacy of the disclosure in the filing as well as the public interest and the protection of investors. Before the staff could grant such a request, in light of the findings in the Order, and because BF Borgers has been denied the privilege of appearing or practicing before the Commission, any issuer with a pending registration statement that contains or incorporates by reference financial information audited or reviewed by BF Borgers would need to file a pre-effective amendment to include financial information audited or reviewed, as applicable, by a qualified, independent accountant that is permitted to appear or practice before the Commission. In addition, any issuer that has submitted a draft registration statement for nonpublic review that includes an audit opinion or consent from BF Borgers must retain a qualified, independent accountant that is permitted to appear or practice before the Commission to perform the required audit of financial information before publicly filing the registration statement. Finally, issuers with effective Securities Act registration statements are reminded that any sales must be preceded or accompanied by a Securities Act Section 10(a)-compliant prospectus, which must not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.

Regulation A Offering Statements

Similarly, before the staff could grant a qualification request, in light of the findings in the Order, and because BF Borgers has been denied the privilege of appearing or practicing before the Commission, any issuer with a pending Regulation A offering statement requiring audited financial statements in which any financial statements have been previously audited by BF Borgers would need to file a pre-qualification amendment to include financial statements audited by a qualified, independent accountant that is permitted to appear or practice before the Commission. Issuers with ongoing Regulation A offerings are reminded that a qualified offering statement must not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.

For More Information

The Division of Corporation Finance and Office of the Chief Accountant will carefully monitor developments related to the Commission’s Order, and we invite any person with obligations under the federal securities laws to contact Commission staff with questions and concerns.

Please direct questions about disclosure of a change in accountants, restating financial statements and related guidance to the Chief Accountant’s Office in the Division of Corporation Finance at (202) 551-3400 or via an Online Request for Assistance.

Please direct questions about filing reviews and effectiveness of registration statements to the appropriate Industry Office in the Division of Corporation Finance at (202) 551-2076. If you do not know the office to contact, click here.

Please direct any other requests for guidance to the Office of Chief Counsel in the Division of Corporation Finance at (202) 551-3500 or via an Online Request for Assistance.

Please direct questions related to auditor practice, qualifications, or independence to the Office of the Chief Accountant at (202) 551-5300 or to [email protected].

[1] This statement represents staff views of the Division of Corporation Finance (“CF”) and the Office of the Chief Accountant (“OCA”). It is not a rule, regulation, or statement of the Securities and Exchange Commission (“SEC” or the “Commission”). The Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person. “Our” and “we” are used throughout this statement to refer to CF and OCA staff. References herein to the “Securities Act” refer to the Securities Act of 1933 and references to the “Exchange Act” refer to the Securities Exchange Act of 1934.

[2] Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, File No. 3-21926 (May 3, 2024) (“Order”). A copy of the Order is available on the Commission’s website at https://www.sec.gov/files/litigation/admin/2024/33-11283.pdf.

[3] See Rule 102(f) of the Commission’s Rules of Practice.