The SEC has alleged improper professional conduct against LBB & Associates and Carlos Lopez regarding its audit of Behavioral Recognition Systems (‘BRS’).
LBB is a PCAOB-registered accounting and auditing firm with 28 public company clients. It has two partners and approximately 8 accountants on staff. Carlos Lopez is the managing partner and majority owner. It is based in the Westchase area of Houston.
BRS, now known as Giant Gray, is a private company owned by Ray Davis that sold video analytic software. In December 2017, the SEC filed a complaint against BRS and Davis alleging that they engaged in a fraudulent scheme to raise $28 million from BRS investor funds and divert $7.8 million for Davis’s personal use. The SEC alleged that Davis used the funds to purchase ancient jewelry, gold and other artifacts. Davis allegedly tried to cover his tracks by submitting fake consulting invoices to BRS from two companies that he controlled.
Mr Davis died in July 2018 before the case could be concluded. He had sold BRS in July 2015 and the alleged fraud was discovered soon afterwards. Giant Gray filed for Chapter 7 bankruptcy in April 2018.
Mr Davis hired LBB to conduct audits for BRS for the years 2010 through 2014. Lopez was the engagement partner for 2010 through 2012 and the Engagement Quality Review partner for the 2013 and 2014 audits. Mr Lopez should have known the audit was high risk as the audited financials would be used to raise money from investors.
BRS had no CFO and relied on a single part-time bookkeeper to maintain its accounting records. The SEC alleges that, for the 2012 audit, Mr Lopez relied on management representations regarding the $1 million transactions with the related parties and didn’t perform proper auditing procedures.