Accountant arrested under Sarbanes-Oxley
Ernst & Young........no less
By Edward Iwata, USA TODAY

SAN FRANCISCO — In one of the first cases of document destruction brought under the Sarbanes-Oxley Act, a former senior partner at Big Four accounting firm Ernst & Young was arrested here Thursday on charges of destroying audit papers and obstructing federal investigations.

Thomas Trauger, a 40-year-old CPA in the Ernst & Young office here, allegedly altered and deleted computer records on the 2000 and 2001 financial statements of NextCard, a bankrupt dot-com firm and a former Ernst & Young client.

The Justice Department charged Trauger with two criminal counts of falsifying records and obstructing investigations by the Securities and Exchange Commission and the Office of the Comptroller of the Currency, the federal agency that oversees financial firms.

Trauger pleaded not guilty and was freed on $1 million bail. His attorney, Edward Swanson of Swanson & McNamara, said, He's a good man, a well-respected accountant, and I'm confident he will be exonerated.

Potential penalties for Trauger are much harsher under Sarbanes-Oxley, the corporate anti-crime law enacted after the Enron and Wall Street financial scandals over the past two years. Trauger could face up to 25 years in prison and $500,000 in fines.

Also Thursday, the SEC in a civil filing accused Trauger and 33-year-old Michael Mullen, a former Ernst & Young audit manager, of unethical and improper professional conduct for their alleged destruction of documents.

Mullen's attorney, Robert Breakstone, said his client is cooperating with the SEC and hopes to resolve the administrative action.

Oliver Flanagan, 34, a third former Ernst & Young manager involved in the case, settled SEC civil charges and pleaded guilty Thursday to one criminal count of obstruction of justice. After three years, Flanagan can reapply to be an auditor for public firms.

According to the FBI and the SEC, Trauger in November 2001 ordered Flanagan to use his laptop computer to alter working papers on NextCard's loan losses. Trauger also allegedly ordered Flanagan to change the date on his laptop, to make it look as if the documents had been worked on during the original audit months earlier.

SEC official Robert Mitchell said Trauger — who had approved an earlier clean audit of NextCard — was trying to downplay or eliminate evidence of problems that would have been red flags.

Ernst & Young spokesman Ken Kerrigan said the alleged actions by the men were clear violations of firm policy and professional standards. Ernst & Young launched an internal investigation and contacted federal authorities, he said.

Online credit card company NextCard went bankrupt last year after owing creditors $464 million.

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