SEC wants to sanction a PwC accountant for failing to flag Steven Burrill as he looted a biotech fund

Once a high-profile venture investor in biotech, Steven Burrill became notorious in biotech after accepting responsibility for looting one of his funds to pay for business and personal expenses, including gifts for a mistress. Now the SEC is going after his accountant at PwC, looking to bar him from number crunching after laying out allegations of how quickly he was willing to accommodate Burrill’s theft.

The crux of the case against Adrian Beamish centers squarely on the way Burrill and his colleagues regularly advanced management fees to the general partner for the $283 million Burrill Life Sciences Capital Fund III—fees that were paid well in advance of the work. At the end of 2009, that figure amounted to $4.9 million.  A year later it was $9.3 million, and after 2011 it was $13.4 million.

“These balances were significant, far surpassing PwC’s internally-established threshold for materiality and were recognized by the PwC audit team, and by Beamish particularly, as unusual in the industry,” the SEC alleges in its complaint against the 44-year-old CPA. But he didn’t follow up on it, with predictable results.

The auditors’ calculation of the amount of future fees available to the General Partner during the 2011 audit, however, was incorrect by a significant margin. If his audit team had correctly calculated the future management fees to be earned, using a conservative calculation, Beamish would have realized there was, at most, $3.2 million in future fees to be earned—not the $10.2 million that the PwC team had calculated. After the approximately $3.2 million was paid, Fund III would have no contractual obligation to pay additional management fees to the General Partner or its designee for the remaining contractual term of the Fund.

By the end of 2012, the advance had swelled to a whopping $17.9 million. And this time, Beamish made note of the issue in his audit. But when Burrill’s firm objected, he took it out. And when the firm offered an unsecured IOU for the amount, he agreed to take that note out of the audit as well, according to the SEC. And he badly misstepped by failing to ascertain how Burrill planned to pay that amount.

By the summer of 2013, the Fund’s investment committee discovered the issue for themselves. And the matter quickly blew up in a highly public scandal, as former partners filed claims outlining the theft charges.

“Auditors perform a critical check on fraudulent conduct, especially when related party transactions are involved,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. “We allege that Beamish’s repeated failure to exercise professional skepticism prevented him from recognizing that Burrill was stealing investor money from the fund.”

Last spring, Burrill settled his dispute with the SEC, handing over $6 million to cover what he had lifted out of the fund for expenses that included family vacations to St. Barts and Paris as well as jewelry, gifts, car service, and private jets. The gifts went to both his girlfriend as well as his wife.

Now the SEC wants Beamish to be sanctioned — perhaps by losing his right to practice accounting — for being an unwitting accomplice, failing to flag what any skeptical accountant is expected to suss out for investors.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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