INITIAL DECISION RELEASE NO. 1391

INITIAL DECISION RELEASE NO. 1391

ADMINISTRATIVE PROCEEDING

FILE NO. 3-18994

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

JOSEPH S. AMUNDSEN, CPA,

MICHAEL T. REMUS, CPA, and

MICHAEL REMUS CPA

APPEARANCES:

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INITIAL DECISION

December 5, 2019

Richard G. Primoff and Alix Biel for the

Division of Enforcement, Securities and Exchange Commission

Respondent Joseph S. Amundsen, CPA, pro se

Peter Ginsberg of Sullivan & Worcester, LLP, for

Respondents Michael T. Remus, CPA, and Michael Remus CPA

BEFORE:

Carol Fox Foelak, Administrative Law Judge

SUMMARY

This Initial Decision (ID) sanctions Michael T. Remus, CPA, and Michael Remus CPA

(collectively, Remus),1 and Joseph S. Amundsen, CPA, for violations of the auditor

independence requirements in fourteen audits of broker-dealers where Amundsen’s daughter was

the financial and operations principal (FINOP). The ID imposes cease-and-desist orders;

suspends Remus from appearing or practicing before the Securities and Exchange Commission

for one year; and orders Remus to disgorge $56,227, and Amundsen, $7,000.

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Since the firm Michael Remus CPA is effectively the alter ego of Michael T. Remus, CPA,

“Remus” will be referred to as “he” or “him.” Unless Michael T. Remus or the Remus firm is

specified, “Remus” refers to both Respondents collectively.

I. INTRODUCTION

A. Procedural Background

The Commission instituted this proceeding with an Order Instituting Proceedings (OIP)

on February 8, 2019, pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934

and Rule 102(e) of the Commission’s Rules of Practice. On April 25, 2019, the Commission

ordered that a hearing be convened before an Administrative Law Judge on June 17, 2019.

Joseph S. Amundsen, CPA, Exchange Act Release No. 85717, 2019 SEC LEXIS 974, at *3. The

undersigned held a two-day hearing in New York City on June 17 and 18, 2019. The Division of

Enforcement called five witnesses, from whom evidence was taken, including one expert witness

and Respondents Joseph S. Amundsen and Michael T. Remus.2 Respondents did not call any

additional witnesses.

The findings and conclusions in this ID are based on the record. Official notice pursuant

to 17 C.F.R. § 201.323 is taken of the Commission’s public official records and of Financial

Industry Regulatory Authority, Inc. (FINRA), Public Company Accounting Oversight Board

(PCAOB), and American Institute of Certified Public Accountants (AICPA) records as well. See

Joseph S. Amundsen, Exchange Act Release No. 69406, 2013 SEC LEXIS 1148, at *1 n.1 (Apr.

18, 2013), pet. denied, 575 F. App’x 1 (D.C. Cir. 2014). Preponderance of the evidence was

applied as the standard of proof. See Steadman v. SEC, 450 U.S. 91, 97-104 (1981). All

arguments and proposed findings and conclusions that are inconsistent with this ID were

considered and rejected.

B. Allegations and Arguments of the Parties

This case concerns annual reports required of broker-dealers by the Exchange Act that

were prepared by Remus, who engaged Amundsen as the Engagement Quality Reviewer (EQR).

The OIP alleges that Remus engaged Amundsen as the EQR on fourteen audits of seven brokerdealers in 2015 and 2016; that Amundsen had been enjoined since 1983 from appearing or

practicing before the Commission in any way; that his daughter was the FINOP of the brokerdealers responsible for preparing the reports being audited; and that Remus was aware of the

familial relationship, which violated auditor independence requirements. The Division urges that

Respondents be ordered to cease and desist from further violations; that Remus be barred from

appearing or practicing before the Commission; that Remus be ordered to disgorge $57,227, and

Amundsen, $7,000 – the fees that they received for the audits.

Remus acknowledges that he erred, but points to an otherwise unblemished thirty-one

year career in auditing and urges that no additional discipline be ordered beyond the emotional

and professional damage that he has experienced as a result of his violation. Amundsen urges

that the proceeding be dismissed. Respondents emphasize that there was no financial inaccuracy

Citations to the transcript are noted as “Tr. __.” Citations to exhibits offered by the Division,

Amundsen, and the Remus Respondents are noted as “Div. Ex. __,” “Amundsen Ex. __,” and

“Remus Ex. __,” respectively.

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alleged in the financial reports that they audited – no re-audit, material misstatement, request for

recalculation, or adjustment. Remus acknowledges that he was aware of the familial relationship

but argues that he was unaware that it violated auditor independence requirements and unaware

of Amundsen’s disciplinary history, as well. Amundsen argues that there was no conflict of

interest, noting that a partner in an accounting firm – who has a financial interest in the revenues

from the engagement under review – can be an EQR and that such an interest presents a greater

potential for conflict of interest than a father-daughter relationship.

II. FINDINGS OF FACT

A. Relevant Individuals and Entities

1. Remus

Michael T. Remus, CPA, has been a certified public accountant (CPA) since 1988. Tr. 35,

140. Until this proceeding, he has never been subjected to sanction or discipline. Tr. 140-42. He is

essentially the only employee of the Remus firm, although his son, also a CPA, helps out from time

to time. Tr. 141. Remus first audited public companies in approximately 1992, and broker-dealers

are the only public companies that he audits. Tr. 142. He also audits private companies and

prepares tax returns. Tr. 142-43.

2. Joseph S. Amundsen

Amundsen is a CPA licensed in New York and California. Tr. 186. In 1983 he was

enjoined from violating the antifraud provisions and from appearing or practicing before the

Commission. Div. Ex. 23; SEC v. Amundsen, No. 83-cv-711 (N.D. Cal. Feb. 15, 1983).3 He lost

his accounting licenses as a result of the injunction but was relicensed in about 2000. Tr. 194. He

disputes the validity of the injunction and accuses the SEC of bad faith. Tr. 187-92, 222, 229. He

was also barred by FINRA from association with any FINRA member firm. Div. Ex. 54; Joseph

Stanley Amundsen BrokerCheck Report, available at http://brokercheck.finra.org (last visited

Nov. 25, 2019). He disputes the bar and says that he surrendered his FINRA licenses voluntarily.

Tr. 191, 204, 222. In upholding the bar, the Commission described his failure to disclose the

injunction and license revocation on numerous Forms U-4 as “egregious.” Joseph S. Amundsen,

2013 SEC LEXIS 1148, at *50.4

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Several subsequent court orders in this matter are in evidence as Div. Exs. 23-29. On May 13,

2019, the court found him in contempt for violating the 1983 injunction and deferred

consideration of any penalties until the completion of this administrative proceeding. Div. Ex.

29; SEC v. Amundsen, No. 83-cv-711, ECF No. 139.

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On August 25 and November 12, 2014, Amundsen sought reconsideration from the

Commission of its 2013 order upholding the FINRA bar, which the Commission denied. Joseph

S. Amundsen, Exchange Act Release No. 74015, 2015 SEC LEXIS 101, at *1-2 (Jan. 8, 2015). He

also made several filings with the Court of Appeals, which denied his motion to recall its

mandate on August 5, 2019, and denied his motion for reconsideration of that ruling on

3

After regaining his accounting license, Amundsen passed the Series 27 exam and became a

FINOP for broker-dealers for several years, until FINRA barred him.

3. Stephanie Murray

Stephanie Murray is Amundsen’s daughter. Tr. 204, 285. She worked for her father as a

bookkeeper and helping with his tax practice. Tr. 205. He taught her about the accounting business

and about preparing tax returns, and she helped recruit tax clients. Tr. 205, 305-07. She worked for

him for seven or eight years as an accountant and took several courses in accounting. Id. Then she

passed the Series 27 exam and became a FINOP. Tr. 205, 208, 303. Amundsen introduced her to

some of his broker-dealer clients. Tr. 207, 309-10. After FINRA barred Amundsen, she became

FINOP of several broker-dealers that Remus audited for which Amundsen had been FINOP –

Arjent LLC (n/k/a McBarron), Fox Chase Capital Partners LLC, Profor Securities LLC, Thomas P.

Reynolds Securities Ltd., and CapFi Partners, LLC.5 Tr. 210-12, 311-13. She was FINOP at these

firms during the time at issue.6 Tr. 313-21. Her duties included reconciling bank statements;

making net capital computations; preparing FOCUS reports; having supervisory authority over

financial operations, recordkeeping, and the general ledger; making available various records

including ledgers, securities positions, and bank statements to the firm or regulators; providing the

financial statements and related records to the auditor. Tr. 325-32. During this time she also bore

and was raising four children. Tr. 235, 340.

4. FINOP, EQR

The FINOP is responsible for a broker-dealer’s compliance with applicable net capital,

recordkeeping, and other financial and operational rules, including the preparation and accuracy

of financial reports submitted to a securities industry regulatory body, as provided in FINRA

Rule 1022(b) (superseded by FINRA Rule 1220(a)(4) on October 1, 2018). Tr. 37, 49-51; Div.

Ex. 98. The EQR7 of an audit evaluates the significant judgments and conclusions of the

engagement team in order to determine whether to provide concurring approval of the

engagement report, as provided in PCAOB Auditing Standard (AS) No. 7. Tr. 143-44; Div. Ex.

41. The EQR must be an associated person of a registered public accounting firm and may be an

September 5, 2019, in an Order, which also directed the Clerk “to accept no further submissions

from petitioner in this closed case.” Amundsen v. SEC, No. 13-1252 (D.C. Cir. Sept. 5, 2019).

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She also became FINOP at two additional broker-dealers that Remus audited where Amundsen

had not been FINOP – Allegro Securities LLC and Race Rock Capital LLC. Tr. 212.

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The last of the audits at issue, that of Thomas P. Reynolds for fiscal year-end 2015, was filed

with the Commission on May 24, 2016. Div. Ex. 14 at 2.

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The EQR concept superseded the previous concurring partner review concept in 2009. See

Div. Ex. 41 (PCAOB Release No. 2009-004); Tr. 98-99. Amundsen is of the view that this

requirement was intended to put sole practitioners out of business. Tr. 258, 275.

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individual from outside the firm. Tr. 82; AS No. 7(3). The EQR must be independent of the

company being audited. Tr. 82-83; 43-44; AS No. 7(6).

B. Amundsen as EQR for Remus

Remus became acquainted with Amundsen when Amundsen became FINOP at Thomas

P. Reynolds Securities, which was an existing client. Tr. 149. He hired Amundsen to be his

EQR in 2014. Tr. 153. He paid Amundsen $500 for each EQR engagement. Tr. 247-48.

On each of the EQR engagements at issue, on the “Supervision, Review, and Approval

Form,” Amundsen checked “Yes” to this Item: “I possess the competence, independence,

integrity, and objectivity to perform the engagement quality review (EQR).” Tr. 251; Div. Exs.

15-18, 21 at Engagement Quality Review Item 35; Div. Exs. 19-20 at Engagement Quality

Review Item 2. Amundsen also signed a memorandum directed to Remus confirming his

independence with respect to his engagements for the 2015 year end for several Remus clients at

which his daughter was FINOP – Allegro, Race Rock, CapFi, Profor, Fox Chase, and McBarron

– and representing that he was aware of the independence standards of the AICPA and PCAOB.

Tr. 272-77; Div. Ex. 33. However, Amundsen was unaware that the PCAOB or the Commission

considers the EQR a member of the audit team and that a nondependent child is considered a

“close relative” for independence purposes; he did not consult anyone or any rules concerning

this.8 Tr. 257-71, 274-76, 284-88.

The suggestion that Amundsen actually did Murray’s FINOP work is unproven.9

However, he took a keen interest in her career and well-being. She has referred individuals to

him for tax services. Tr. 220. When the owner of CapFi fired her, Amundsen told him and his

wife that he would no longer do their taxes. Tr. 225-29; Div. Ex. 35. Amundsen became

involved in negotiations with the owner of Fox Chase concerning Murray’s fees. Tr. 232-34.

When Murray was home-bound due to pregnancy, Amundsen picked up documents from

Profor’s office and brought them to her; he discontinued this when the firm put the documents

online and she could access them that way. Tr. 234-37, 240-41.

Remus learned of the 1983 injunction against Amundsen in approximately 2010 or 2011.

Tr. 54-56. He understood that at the time of the 2015 and 2016 audits at issue (for year-end 2014

The AICPA Code of Professional Conduct (Section 92.04) defines “Close relative” as “a

parent, sibling, or nondependent child.” Div. Ex. 64 at 32. Likewise Regulation S-X defines

“close family members” to include “nondependent child.” 17 C.F.R. § 210.2-01(f)(9); see 17

C.F.R. § 240.17a-5(f)(1) (incorporating Regulation S-X requirements).

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But see Div. Ex. 26 (Amundsen’s July 26, 2018, filing in SEC v. Amundsen, 83-cv-0711, ECF

No. 98), which includes the following in the description of his work history: “2011 through

current registered CPA doing taxes. Briefly worked for daughter helping her with her FINRA

FINOP work, and as a review partner for broker dealer audits (2014 and 2015).” Amundsen

explained that this was before the bar became final. Tr. 222. It is found that helping her

preceded his EQR work.

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and 2015), pursuant to AS No. 7, EQRs were required to review financial statements and related

engagement reports; that Amundsen – by being paid for the review as an independent contractor

– became an associated person of the auditing firm; and that the EQR had to have independence.

Tr. 80-83; Div. Ex. 41. He knew that Murray was the FINOP for the firms at issue for which he

engaged Amundsen as EQR, and that Amundsen was her father. Tr. 83-85, 100. The audit

reports included Remus’s representation that they were conducted in accordance with PCAOB

standards and a representation by Amundsen that he was independent. Tr. 86-90; Div. Exs. 1-21.

FINRA had recommended that Remus hire an EQR that was not barred by FINRA, but did not

say that he could not do so. Tr. 96-98, 154-59; Div. Ex. 32; Remus. Ex. 20. Remus was not

aware at the time that the fact that Murray, as Amundsen’s nondependent child, was FINOP at

the audit clients meant that Amundsen was not independent. Tr. 100, 106. He did not consult

anyone at the Commission, the PCAOB, or FINRA or consult any rules on whether this was a

prohibited relationship for independence purposes. Tr. 112-13. Remus was paid approximately

$56,227 for the fourteen audits. Tr. 135-37; Div. Ex. 87.10

Remus replaced Amundsen as EQR for the year-end 2016 audits. Tr. 137-38.

C. Expert Testimony11

Douglas R. Carmichael, CPA, PhD, testified for the Division. Tr. 343-423; Div. Ex. 51.

He is a professor of accountancy at Baruch College. Tr. 344. His past experience includes

working at the AICPA, setting auditing and other professional standards. Tr. 344. He was the

first chief auditor of the PCAOB when it was formed in 2003, where he was in charge of writing

professional standards, including auditing, independence, quality control standards, and the basic

rule on independence, PCAOB Rule 3520. Tr. 345. He was accepted as an expert in PCAOB,

Commission, and AICPA rules on ethics and independence. Tr. 350, 355. With reference to the

fourteen audits at issue, he opined that Amundsen, as father of the person preparing the financial

statements in an accounting role and a financial oversight role, was not independent, and that for

independence purposes the EQR is regarded the same as an engagement partner on the audit and

would have to comply with the same independence requirements. Tr. 357-58. Div. Ex. 51 at 24.

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Div. Ex. 87 is copies of checks and a bank statement showing payment for some of the audits

at issue; the amounts paid, minus two duplicate checks, total $44,848. Div. Ex. 87 has no

evidence of payment for the year-end 2015 audits of Arjent, Thomas P. Reynolds, Profor, or

Race Rock. Remus testified that he was paid the same for the year-end 2015 as for the year-end

2014 audits of Thomas P. Reynolds, Profor, and Race Rock. Tr. 135-37. Including those

payments, the total is $56,227. No evidence was presented concerning payment for the year-end

2015 audit of Arjent.

To the extent that the expert’s evidence does not lead to findings of fact, it will be summarized

here and referred to as appropriate in the Conclusions of Law section of this Initial Decision.

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III. CONCLUSIONS OF LAW

The OIP charges Respondents, CPAs, with primary or secondary violations of Exchange

Act Section 17(a) and rules regarding broker-dealers’ reporting obligations and, pursuant to

Exchange Act Section 4C, 15 U.S.C. § 78d-3; and Rule 102(e)(1)(ii), (iii), 17 C.F.R. §

201.102(e)(1)(ii), (iii), with improper professional conduct.12 The allegations are based on the

alleged lack of independence of the audit team that conducted fourteen audits of seven brokerdealers in 2015 and 2016 in that EQR Amundsen’s daughter was FINOP at the broker-dealers

and that Remus knew this. Specifically, the OIP alleges that the Remus firm violated Exchange

Act Rules 17a-5(g) and (i) by conducting audits that were not in accord with PCAOB standards

and by causing the broker-dealers to file reports that represented that they were; that Michael T.

Remus and Amundsen willfully aided and abetted and/or caused the firm’s violations; that

Respondents caused the broker-dealers to violate Exchange Act Section 17(a) and Rule 17a-5(f)

when the broker-dealers submitted annual reports to the Commission that included a report by an

accountant that was not independent; that Respondents engaged in unprofessional conduct within

the meaning of Rule 102(e)(1)(ii); and that Michael T. Remus and Amundsen are subject to

sanctions under Rule 102(e)(1)(iii). As discussed below, it is concluded that all charges are

proven.

A. Rule 102(e)(1)(iii) and Exchange Act Section 17(a)

Rule 102(e)(1)(iii) provides for sanctions against accountants who “have willfully

violated, or willfully aided and abetted the violation of any provision of the Federal securities

laws or the rules and regulations thereunder.” A finding of willfulness does not require an intent

to violate, but merely an intent to do the act which constitutes a violation. See Wonsover v. SEC,

205 F.3d 408, 413-15 (D.C. Cir. 2000); see also Steadman v. SEC, 603 F.2d 1126, 1135 (5th Cir.

1979), aff’d on other grounds, 450 U.S. 91 (1981); Arthur Lipper Corp. v. SEC, 547 F.2d 171,

180 (2d Cir. 1976); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). Respondents are variously

charged with willfully aiding and abetting and/or causing violations of Exchange Act Section

17(a) and/or Rules 17a-5(f), (g), and/or (i).

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Exchange Act Section 4C, which was added by the Sarbanes-Oxley Act, codified Rule 102(e),

which had been in existence for many years, and provided specific statutory authority for its

provisions. See Pub. L. No. 107-204, § 602, 116 Stat. 745, 794 (2002). Because of this history

and the precedent concerning Rule 102(e), the discussion herein will cite Rule 102(e) rather than

the nearly identical provisions of Exchange Act Section 4C. “It is well established that when

Congress revisits a statute giving rise to a longstanding administrative interpretation without

pertinent change, the congressional failure to revise or repeal the agency’s interpretation is

persuasive evidence that the interpretation is the one intended by Congress.” CFTC v. Schor,

478 U.S. 833, 846 (1986) (internal quotation marks omitted); see Lorillard v. Pons, 434 U.S.

575, 580-81 (1978) (“Congress is presumed to be aware of an administrative or judicial

interpretation of a statute and to adopt that interpretation when it re-enacts a statute without

change . . . [and] where, as here, Congress adopts a new law incorporating sections of a prior

law, Congress normally can be presumed to have had knowledge of the interpretation given to

the incorporated law, at least insofar as it affects the new statute.” (internal citations omitted)).

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Exchange Act Section 17(a) and Rules thereunder require broker-dealers to file annual

reports with the Commission. The requirement that reports be filed carries with it the obligation

that those filings be accurate. Cf. SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir.

1978).

As required by 17 C.F.R. § 240.17a-5(d)(1)(i)(C), (2)(i), financial statements included

with the annual reports must be prepared in accordance with GAAP and must be audited by an

independent accountant. Pursuant to 17 C.F.R. § 240.17a-5(f)(1), the report and qualifications of

the independent accountant must comply with 17 C.F.R. § 210.2-01.13 See 17 C.F.R. § 210.201(b), (c) (defining independent accountant). The Commission considers auditor independence

to be extremely important. See KPMG Peat Marwick LLP, Exchange Act Release No. 43862,

2001 SEC LEXIS 98, at *49 n.51 (Jan. 19, 2001), pet. denied, 289 F.3d 109 (D.C. Cir. 2002).

Aiding and Abetting; Causing

For “aiding and abetting” liability under the federal securities laws, three elements must

be established: (1) a primary or independent securities law violation committed by another

party; (2) awareness or knowledge by the aider and abettor that his or her role was part of an

overall activity that was improper; and (3) that the aider and abettor knowingly and substantially

assisted the conduct that constitutes the violation. See Graham v. SEC, 222 F.3d 994, 1000

(D.C. Cir. 2000); Russo Sec. Inc., Exchange Act Release No. 39181, 1997 SEC LEXIS 2075, at

*16-17 & n.16 (Oct. 1, 1997). A person cannot escape aiding and abetting liability by claiming

ignorance of the securities laws. See Sharon M. Graham, Exchange Act Release No. 40727,

1998 SEC LEXIS 2598, at *29 n.33 (Nov. 30, 1998), pet. denied, 222 F.3d 994 (D.C. Cir. 2000).

The knowledge or awareness requirement can be satisfied by recklessness when the alleged aider

and abettor is a fiduciary or active participant. See Ross v. Bolton, 904 F.2d 819, 824 (2d Cir.

1990). That is, it must be established that a respondent either acted with knowledge or that he

“encountered ‘red flags,’ or ‘suspicious events creating reasons for doubt’ that should have

alerted him to the improper conduct of the primary violator,” or there was a danger so obvious

that he must have been aware of it. Howard v. SEC, 376 F.3d 1136, 1143 (D.C. Cir. 2004).

For “causing” liability, three elements must be established: (1) a primary violation; (2)

an act or omission by the respondent that was a cause of the violation; and (3) the respondent

knew, or should have known, that his conduct would contribute to the violation. Robert M.

Fuller, Exchange Act Release No. 48406, 2003 SEC LEXIS 2041, at *13-14 (Aug. 25, 2003),

pet. for review denied, 95 F. App’x 361 (D.C. Cir. 2004). A respondent who aids and abets a

violation also is a cause of the violation under the federal securities laws. See Graham, 1998

SEC LEXIS 2598, at *29 n.35. Negligence is sufficient to establish liability for causing a

primary violation that does not require scienter. See KPMG, 2001 SEC LEXIS 98, at *82.

The Remus firm is accountable for the actions of its responsible officers – in this case, its

owner and alter ego, Michael T. Remus. See C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1435

13

Part 210 of 17 C.F.R. (17 C.F.R. §§ 210.1-.12) is also known as Regulation S-X.

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(10th Cir. 1988); A.J. White & Co. v. SEC, 556 F.2d 619, 624 (1st Cir. 1977). A company’s state

of mind may be imputed from that of individuals controlling it. See SEC v. Blinder, Robinson &

Co. Inc., 542 F. Supp. 468, 476 n.3 (D. Colo. 1982) (citing SEC v. Manor Nursing Ctrs., Inc.,

458 F.2d 1082, 1096-97 nn.16-18 (2d Cir. 1972)).

B. Violations

Exchange Act Rule 17a-5(g) requires the “independent public accountant engaged by the

broker or dealer to provide . . . reports” based on examination of specified financial reports and

statements required of broker-dealers. Exchange Act Rule 17a-5(i) specifies the required content

of the independent public accountant’s reports, including a statement as to “whether the

examinations or review, as applicable, were made in accordance with standards of the

[PCAOB].” The audit reports at issue included such a representation, but the Remus firm was

not independent because Amundsen was the EQR and his daughter was FINOP – a “close family

member . . . in an accounting role or financial reporting oversight role” at the audit clients. See

17 C.F.R. § 210.2-01(c)(2)(ii); see also 17 C.F.R. § 210.2-01(f)(9) (defining “close family

members” to include “nondependent child”). As EQR, Amundsen was a covered person of the

Remus firm for independence purposes and a member of its audit engagement team. 17 C.F.R. §

210.2-01(f)(7), (f)(11). Thus, the Remus firm violated Exchange Act Rules 17a-5(g) and (i).

Michael T. Remus and Amundsen aided and abetted and caused these violations. Each was an

active participant in the audit reports as engagement partner or EQR and each either knew, or

was at least reckless in his lack of awareness, that his role was part of an overall activity that was

improper, and each knowingly and substantially assisted the conduct that constitutes the

violation through his work as engagement partner or EQR. Since Michael T. Remus and

Amundsen willfully aided and abetted the violations of Rules 17a-5(g) and (i), they engaged in

conduct as proscribed by Rule 102(e)(1)(iii).

The broker-dealers filed annual reports pursuant to Exchange Act Rule 17a-5(d) that

included a representation pursuant to Rule 17a-5(f) of the independence of its public accountant.

Since that statement in the fourteen reports at issue was false, the broker-dealers violated Rule

17a-5(f). For the reasons set forth above, Respondents caused the violations by the same actions

that violated or aided and abetted violations of Exchange Act Rules 17a-5(g) and (i).

C. Rule 102(e)(1)(ii)

Rule 102(e)(1)(ii) provides for sanctions against accountants who “have engaged in . . .

improper professional conduct.” “With respect to persons licensed to practice as accountants,

‘improper professional conduct’ under Rule 102(e)(1)(ii) . . . means [i]ntentional or knowing

conduct, including reckless conduct, that results in a violation of applicable professional

standards . . . .” 17 C.F.R. § 201.102(e)(1)(iv)(A).

1. Recklessness

The Commission defines recklessness the same as recklessness under the antifraud

provisions (for the purpose of consistency in the federal securities laws; “professional standards”

are not fraud-based). Thus, recklessness is “an extreme departure from the standards of ordinary

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care, . . . which presents a danger of misleading buyers or sellers that is either known to the

[actor] or is so obvious that the actor must have been aware of it.” Amendment to Rule 102(e) of

the Commission’s Rules of Practice, 63 Fed. Reg. 57164, 57167 (Oct. 26, 1998) (Rule 102(e)

Amendment). It is “a lesser form of intent,” “not merely a heightened form of ordinary

negligence.” Id. (internal citations and quotation marks omitted).

An auditor does not guarantee that financial statements are free of material misstatement.

An auditor’s “responsibility [is] to plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether caused by error

or fraud.” AU § 110.02.14 Further, recklessness is more than a misapplication of accounting

principles; the Division must prove that Respondents’ “accounting practices were so deficient

that the audit amounted to no audit at all, or an egregious refusal to see the obvious, or to

investigate the doubtful, or that the accounting judgments . . . were such that no reasonable

accountant would have made the same decision if confronted with the same facts;” reasonable

accountants can differ, and evidence indicating that questioned accounting decisions were

reasonable negates an attempt to establish scienter. See In re Worlds of Wonder Sec. Litig., 35

F.3d 1407, 1426 (9th Cir. 1994) (quoting SEC v. Price Waterhouse, 797 F. Supp. 1217, 1240

(S.D.N.Y. 1992)); accord In re Software Toolworks Inc., 50 F.3d 615, 627 (9th Cir. 1994) (“The

mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more,

does not establish scienter.” (citations and internal quotation marks omitted)). Violations of

GAAP or auditing standards in themselves do not constitute recklessness. See Chill v. Gen.

Elec., 101 F.3d 263, 270 (2d Cir. 1996) (“Allegations of a violation of GAAP provisions or SEC

regulations, without corresponding fraudulent intent, are not sufficient . . . .”).

2. Applicable Professional Standards

Applicable professional standards include GAAP, Auditing Standards, the AICPA Code

of Professional Conduct, and Commission Regulations. See Rule 102(e) Amendment, 63 Fed.

Reg. at 57166.

D. Improper Professional Conduct

The Division argues that the audits at issue did not comply with professional standards in

that Respondents did not comply with auditing standards pertaining to independence. Thus, the

Division argues, Respondents engaged in improper professional conduct. Respondents’

arguments that there is no inaccuracy in the financial statements included in the reports are

relevant to the question of sanctions, but not to the question of violation in view of the

Commission’s strict policy on independence.

As concluded above, when the Remus firm provided an Independent Auditors’ Report for

the broker-dealer reports at issue, Respondents were not independent within the meaning of

“AU” refers to an auditing standard among the Generally Accepted Auditing Standards

published by the AICPA and in effect before the current PCAOB standards. AU § 110.02 was

current at the time at issue.

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10

Regulation S-X. Michael T. Remus and Amundsen knew, or in the alternative, were each

reckless in not knowing, that Respondents were not independent, for the reasons discussed

above. Michael T. Remus’s state of mind was attributed to the Remus firm. It is concluded that

Respondents’ lack of independence was improper professional conduct within the meaning of

Rule 102(e)(ii).

IV. SANCTIONS

The Division requests that: (1) Respondents be ordered to cease and desist from

violations of Exchange Act Rule 17a-5; (2) Remus be denied the privilege of appearing or

practicing before the Commission for not less than five years;15 (3) Respondents be ordered to

disgorge ill-gotten gains – $7,000 by Amundsen and $57,227 by Remus – plus prejudgment

interest; and (4) Amundsen and Remus each be ordered to pay significant Tier 2 civil penalties.16

Respondents request that the proceeding be dismissed. For the reasons discussed below,

Respondents will be ordered to cease and desist from violations of Exchange Act Rule 17a-5; the

Remus Respondents will be denied the privilege of appearing or practicing before the

Commission for one year; and disgorgement – of $7,000 by Amundsen and $56,227 by Remus –

will be ordered. No civil penalties will be ordered.

When the Commission determines administrative sanctions, it considers:

[T]he egregiousness of the defendant’s actions, the isolated or recurrent nature of

the infraction, the degree of scienter involved, the sincerity of the defendant’s

assurances against future violations, the defendant’s recognition of the wrongful

nature of his conduct, and the likelihood that the defendant’s occupation will

present opportunities for future violations.

Steadman v. SEC, 603 F.2d at 1140. 17 The Commission also considers the age of the violation

and the degree of harm to investors and the marketplace resulting from the violation. Marshall

E. Melton, Investment Advisers Act of 1940 Release No. 2151, 2003 SEC LEXIS 1767, at *5

(July 25, 2003). Additionally, the Commission considers the extent to which the sanction will

15

The Division states that it does not request that Amundsen be barred from appearing or

practicing before the Commission pursuant to Rule 102(e) since he is already barred. See SEC v.

Amundsen, No. 83-cv-711 (N.D. Cal.). Rule 102(e) also provides censure as a sanction, but the

Division did not request that Amundsen be censured.

16

The Division urges a total penalty of $138,565 for each, or, alternatively, using a different

metric to calculate the penalty, $174,713 for each.

17

The Commission considers the Steadman factors, which it has long applied in other

administrative proceedings, in Rule 102(e) proceedings against CPAs, as well. See Michael C.

Pattison, CPA, Exchange Act Release No. 67900, 2012 SEC LEXIS 2973, at *23 & n.34 (Sept.

20, 2012); accord Thomas D. Melvin, CPA, Exchange Act Release No. 75844, 2015 SEC LEXIS

3624, at *8 & n.16 (Sept. 4, 2015).

11

have a deterrent effect. Schield Mgmt. Co., Exchange Act Release No. 53201, 2006 SEC LEXIS

195, at *35 & n.46 (Jan. 31, 2006).

Remus stresses that there are no allegations of inaccurate values on the financial

statements, and Amundsen does, as well. These facts mitigate the egregiousness of the

independence violation to some extent. Independence, however, is a crucial concept in auditing

and in requirements for financial statements filed by public corporations with the Commission.

It could not be clearer that the Commission does not accept as independent an audit team that

includes quality review by a close family member of the client’s FINOP.

Respondents’ conduct was egregious and recurrent fourteen times over two years, until

Remus replaced Amundsen as EQR after 2016. The conduct involved a reckless degree of

scienter by both Remus and Amundsen. While scienter is not an element of a violation of

Exchange Act Rules 17a-5(g) and (i), which are strict liability provisions, the standard of

recklessness is well-developed in securities law. Often cited is SEC v. Steadman, 967 F.2d 636,

641-42 (D.C. Cir. 1992), in which the court held that recklessness satisfied the scienter element

of the antifraud provisions of the securities laws defining it as “not merely a heightened from of

ordinary negligence,” but an “extreme departure from the standards of ordinary care, . . . which

presents a danger of misleading buyers or sellers that is either known to the defendant or is so

obvious that the actor must have been aware of it.” The Commission has adopted this definition

of recklessness in defining improper professional conduct of accountants in 17 C.F.R. §

201.102(e) even though such professional standards are not fraud based, for the purpose of

consistency in the federal securities laws. Rule 102(e) Amendment, 63 Fed. Reg. at 57164,

57167.

Respondents’ occupations may provide opportunities for future violations. However,

Remus, who previously had an almost thirty-year unblemished record, has recognized the

wrongful nature of the conduct and made assurances against future violations. Amundsen has

done neither, sincerely believing himself to be the victim of overzealous enforcement. The

FINRA bar and injunction, however, may limit his opportunities for future violations. The

violations are relatively recent. There was no direct financial harm to clients. Further, as the

Commission has often emphasized, the public interest requires consideration of not only those

specifically affected by a respondent’s conduct but also the public-at-large, the welfare of

investors as a class, and standards of conduct in the securities business generally.

A. Cease and Desist

Exchange Act Section 21C authorizes the Commission to issue a cease-and-desist order

against a person who “is violating, has violated, or is about to violate” any provision of the

Exchange Act or rules or who “is, was, or would be a cause of the violation.” Whether there is a

reasonable likelihood of such violations in the future must be considered. KPMG, 2001 SEC

LEXIS 98, at *101. Such a showing is “significantly less than that required for an injunction.”

Id. at *114. In determining whether a cease-and-desist order is appropriate, the Commission

considers the Steadman factors quoted above, as well as the recency of the violation, the degree

of harm to investors or the marketplace, and the combination of sanctions against the respondent.

See WHX Corp. v. SEC, 362 F.3d 854, 859-61 (D.C. Cir. 2004); KPMG, 2001 SEC LEXIS 98, at

12

*116. Applying these considerations as discussed above, a cease-and-desist order as to each

Respondent is appropriate.

B. Rule 102(e)

A one-year suspension of Remus is an appropriate sanction combined with the other

sanctions ordered and consistent with Commission precedent.18 Because of Michael T. Remus’s

role in the Remus firm, the same sanction against each is appropriate.

18

See Wendy McNeely, CPA, Exchange Act Release No. 68431, 2012 SEC LEXIS 3880 (Dec.

13, 2012) (suspending for six months CPA who failed to comply with professional standards

regarding related party receivables that were actually misappropriations in audit of private

company and related fund); Gregory M. Dearlove, CPA, Exchange Act Release No. 57244, 2008

SEC LEXIS 223 (Jan. 31, 2008) (bar with right to reapply after four years and cease and desist

order; CPA caused violations of reporting and recordkeeping provisions and accepted

management representations as to billions of dollars of related party payables, receivables, and

contingent debt); James Thomas McCurdy, CPA, Exchange Act Release No. 49182, 2004 SEC

LEXIS 221 (Feb. 4, 2004) (suspending for one year CPA who failed to obtain sufficient evidence

regarding collectability of a receivable that was 25% of an investment company’s assets); Barry

C. Scutillo, Exchange Act Release No. 48238, 2003 SEC LEXIS 1777 (July 28, 2003) (ordering

a bar with right to reapply after three years; CPA failed to comply with professional standards

regarding a purported mining company’s valuation of its assets consisting almost entirely of

questionable Russian CDs and mining properties); Russell Ponce, Exchange Act Release No.

43235, 2000 SEC LEXIS 1814 (Aug. 31, 2000) (ordering a bar with right to reapply in five years

and cease-and-desist order; CPA violated antifraud provisions, lacked independence due to

unpaid fees, changed properly expensed costs to capitalize them based solely on management

representations, and inflated value of intangible asset); Robert D. Potts, CPA, Exchange Act

Release No. 39126 1997 SEC LEXIS 2005 (Sept. 24, 1997), aff’d, 151 F.3d 810 (8th Cir. 1998)

(suspending concurring partner for nine months; accounting for asset not in accord with GAAP

and contrary to documentary evidence in file he reviewed); Bill R. Thomas, Accounting and

Auditing Enforcement Release No. 192, 1988 SEC LEXIS 1119 (May 27, 1988) (barring,

permanently, CPA who violated antifraud provisions, owned stock in firm he audited, and

concealed this from his employer, a national accounting firm); Gary L. Jackson, Accounting and

Auditing Enforcement Release No. 85, 1986 SEC LEXIS 2230 (Jan. 21, 1986) (barring,

permanently, CPA who aided and abetted firm’s filing of materially false reports and knowingly

accepted firm’s valuation of worthless mining claims and of an asset based on a sham transaction

with no economic substance); Russell G. Davy, Accounting and Auditing Enforcement Release

No. 53, 1985 SEC LEXIS 1748 (Apr. 15, 1985) (barring, permanently, CPA who violated

antifraud provisions, accepted management representations about sham transactions despite red

flags and ignored information that he actually knew); Ernst & Ernst, Accounting Series Release

No. 248, 1978 SEC LEXIS 1451 (May 31, 1978) (suspending engagement partner for one year,

audit manager, for three months, and censuring CPA firm; materially false and misleading

financial statements contained sham and improperly accounted for acquisitions, and respondents

lacked independence in repeated dependence on management representations concerning

significant information despite red flags).

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C. Disgorgement

Exchange Act Section 21C(e) authorizes disgorgement of ill-gotten gains from

Respondents. Disgorgement of ill-gotten gains is “an equitable remedy designed to deprive a

wrongdoer of his unjust enrichment and to deter others from violating the securities laws.”

Montford & Co. v. SEC, 793 F.3d 76, 84 (D.C. Cir. 2015) (quoting SEC v. First City Fin. Corp.,

890 F.2d 1215, 1230 (D.C. Cir. 1989)). “Thus, ‘disgorgement need only be a reasonable

approximation of profits causally connected to the violation.’” Id. (quoting First City Fin. Corp.,

890 F.2d at 1231); see SEC v. First Pac. Bancorp, 142 F.3d 1186, 1192 n.6 (9th Cir. 1998)

(holding disgorgement amount only needs to be a reasonable approximation of ill-gotten gains);

Laurie Jones Canady, Exchange Act Release No. 41250, 1999 SEC LEXIS 669, at *38 n.35

(Apr. 5, 1999) (quoting SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1475 (2d Cir. 1996)), pet.

denied, 230 F.3d 362 (D.C. Cir. 2000). It returns the violator to where he would have been

absent the violative activity. Remus was paid at least $56,227 for the fourteen audits, and

Amundsen was paid $7,000 for his EQR work on those audits. Thus, disgorgement of those

sums plus prejudgment interest will be ordered.

D. Civil Money Penalty

Exchange Act Section 21B(a)(2) authorizes the Commission to impose civil money

penalties in a proceeding instituted under Section 21C against a person who is violating or has

violated, or was the cause of the violation of, any provision of the Exchange Act or rules. In this

proceeding the combination of other sanctions ordered in this proceeding against Remus are

sufficient in light of the Steadman factors and as deterrence, and no penalty will be ordered.

Likewise, the sanctions ordered in this proceeding against Amundsen are sufficient when

account is taken of the pending proceeding against Amundsen in the U.S. District Court for the

Northern District of California, which, having found him in contempt, will order appropriate

relief after the completion of this proceeding.

V. RECORD CERTIFICATION

Pursuant to Rule 351(b) of the Commission’s Rules of Practice, 17 C.F.R. § 201.351(b),

it is certified that the record includes the items set forth in the record index issued by the

Secretary of the Commission on October 25, 2019.

VI. ORDER

IT IS ORDERED that, pursuant to Section 21C of the Exchange Act, JOSEPH S.

AMUNDSEN, CPA, MICHAEL T. REMUS, CPA, and MICHAEL REMUS CPA CEASE AND

DESIST from violations of Exchange Act Rule 17a-5.

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IT IS FURTHER ORDERED that, pursuant to Section 4C of the Exchange Act and Rule

102(e) of the Commission’s Rules of Practice, MICHAEL T. REMUS, CPA, and MICHAEL

REMUS CPA ARE DENIED the privilege of appearing or practicing before the Commission for

one year.

IT IS FURTHER ORDERED that, pursuant to Section 21C of the Exchange Act,

MICHAEL T. REMUS, CPA, and MICHAEL REMUS CPA, JOINTLY AND SEVERALLY,

DISGORGE $56,227 plus prejudgment interest and JOSEPH S. AMUNDSEN, CPA,

DISGORGE $7,000 plus prejudgment interest. Prejudgment interest is computed at the rate

established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2),

compounded quarterly, pursuant to 17 C.F.R. § 201.600(b). Pursuant to 17 C.F.R. § 201.600(a),

prejudgment interest is due from June 1, 2016, through the last day of the month preceding

which payment is made.

Payment of disgorgement and prejudgment interest shall be made no later than twentyone days following the day this Initial Decision becomes final, unless the Commission directs

otherwise. Payment shall be made in one of the following ways: (1) transmitted electronically to

the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request;

(2) direct payments from a bank account via Pay.gov through the SEC website at

http://www.sec.gov/ofm; or (3) by certified check, United States postal money order, bank

cashier’s check, or bank money order, payable to the Securities and Exchange Commission –

such payment .

A payment by certified check, United States postal money order, bank cashier’s check, or

bank money order shall include a cover letter identifying the Respondent[s] and Administrative

Proceeding File No. 3-18994, and shall be delivered to: Enterprises Services Center, Accounts

Receivable Branch, HQ Bldg., Room 181, AMZ-341, 6500 South MacArthur Bld., Oklahoma

City, OK 73169. A copy of the cover letter and instrument of payment shall be sent to the

Commission’s Division of Enforcement, directed to the attention of counsel of record.

This ID shall become effective in accordance with and subject to the provisions of 17

C.F.R. § 201.360, pursuant to which a party may file a petition for review of this ID within

twenty-one days after service of the ID. A party may also file a motion to correct a manifest

error of fact within ten days of the ID, pursuant to 17 C.F.R. § 201.111(h). If a motion to correct

a manifest error of fact is filed by a party, then a party shall have twenty-one days to file a

petition for review from the date of the undersigned’s order resolving such motion to correct a

manifest error of fact. The ID will not become final until the Commission enters an order of

finality. The Commission will enter an order of finality unless a party files a petition for review

or a motion to correct a manifest error of fact or the Commission determines on its own initiative

to review the ID as to a party. If any of these events occur, the ID shall not become final as to

that party.

/S/ Carol Fox Foelak

Carol Fox Foelak

Administrative Law Judge

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