The issues centered around $24 million embezzled from clients of AA Capital Equity Fund AA Capital, and the related AA Capital Partners, which managed six union pension funds by John Orechio, the investment firm's president. Orechio had characterized $5.7 million of the transfers questioned by E&Y as loans to help him pay taxes. The SEC said the funds were utilized for his personal use. Orecchio was later charged with one count of wire fraud and one count of embezzling funds of an employee pension benefit plan. In June, he was sentenced to nine years and four months in prison, to be followed by three years probation.
He must pay $26 million in restitution, $50 million in a civil judgment obtained by the U.S. Department of Labor, along with another $7.8 million in a global settlement. Among the funds he stole was $2.5 million spent on tickets for professional sporting events, including luxury box seats, $1.5 million for client events involving first-class tickets and luxury hotels. There was also $180,000 paid to a strip club owner to promote a dancer manager. Orecchio bought the dancer a horse farm, purchased $1.5 million in jewelry for her and proposed marriage, although he already had a wife and three children.
Mahoney held that Oprins adequately planned and reasonably supervised the 2004 audit, and was while his performance was unreasonable and that Oprins "violated GAAP by failing to ensure that AA Capital's and the Equity Fund's financial statements disclosed the purpose and substance behind the Transfers" it wasn't highly unreasonable, a finding required to merit suspension.
McNeeley's action was held highly unreasonable and the judge gave credence to Oprins testimony that she hadn't informed him of factors surrounding the transfers that would have raised his suspicions. Mahoney said McNeeley failed to notice "significant warning signs throughout the audit" regarding the transfers.
When McNeeley went on maternity leave, Jennifer Aquino replaced her on the audit team for the 2005 financials. Aquino asked for documentation regarding the transfers, but did not receive it. As a result, E&Y said it would withhold its 2005 opinion until the transfers were paid back. Meanwhile, the firm issued a going concern regarding the 2005 financials and the audit report was not released because the firm could not resolve open issues.