LBB Associates and its managing partner and majority partner, Carlos Lopez, have been barred by the Securities and Exchange Commission from performing public company audits. Or in the language of the SEC ‘LBB and Lopez are denied the privilege of appearing or practicing before the Commission as accountants’.
LBB, based in NW Houston, has two partners and approximately eight accountants on staff. It has about 28 public company clients. The stock of these clients is generally not publicly-traded but the clients follow SEC rules and filing requirements.
The case arose out of the collapse of an audit client, Behavioral Recognition Systems in 2015. At the time, that company was owned by Ray Davis. The SEC later filed a complaint against BRS and Davis. It alleged 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 related companies that he controlled.
The alleged fraud was discovered shortly after Davis sold the company in July 2015. However, Davis died in July 2018 before the case could be concluded.
The SEC started disciplinary proceedings against LBB in January 2019, alleging professional misconduct. The primary allegation was that Lopez relied on BRS management representations concerning the related party transactions and failed to perform any audit work around them.
Without admitting or denying the findings of the SEC, LBB and Mr Lopez agreed to the sanctions imposed. After two years, Lopez and LBB may apply to the Commission to be reinstated. However such future work would have to be reviewed by an independent audit committee of the public company.