Donald Trump’s social media company just became the most valuable publicly traded client of an accounting firm that has more experience auditing over-the-counter companies and has had a number of regulatory problems, including a rate shortage 100% on audits reviewed by a US watchdog.
Trump Media & Technology Group Corp. said in recent regulatory filings that it will retain BF Borgers, a Lakewood, Colorado-based accounting firm, as its auditor after it began trading publicly late last month. A Canadian regulator said last year that BF Borgers violated its rules for auditors, while the U.S. Public Company Accounting Oversight Board found multiple deficiencies in every audit examined by the company in the last two annual audits.
Closely held companies often retain audit firms after going public through mergers with blank check firms. But most of BF Borgers’ clients, such as Lingerie Fighting Championships Inc., a mixed martial arts league, are significantly smaller than Trump’s media business. Its shortage rate by the PCAOB was worse than the industry rate of 40% in 2022, and December’s enforcement action by Canada’s regulator prevents it from accepting new clients in that country until will have made certain improvements.
A representative for BF Borgers did not respond to multiple requests for comment.
Trump Media said in a statement that articles about BF Borgers’ past were partisan and “preemptively attacked our auditors before they even began their work for us as a public company.”
TMTG has been using the company since 2022 as it sought to go public by merging with Digital World Acquisition Corp., a special purpose acquisition company. PCAOB inspections have not yet covered BF Borgers’ audits of Trump Media.
Read more: Trump Media is now the most expensive US stock to bet against
Trump owns most of TMTG’s shares and its listing on the Nasdaq earned the former president a multibillion-dollar windfall. After the surge in its stock price, the company is now valued at around $5 billion. The company’s shares fell 10% to $36.52 as of 1.04pm on Monday in New York.
Audit report sheet
Small or foreign audit firms often have high deficiency rates and are typically examined only every three years by PCAOB inspectors. However, BF Borgers is a prolific auditor with more frequent examinations. It ranked eighth on the list of audit firms with the most publicly traded clients last year, with just nine fewer clients than mid-tier firm BDO USA, according to research firm Ideagen Audit Analytics . Among the 10 most active audit firms, Withum Smith+Brown had an 80% deficiency rate and BDO had a 66% rate in 2022, according to the Audit Regulatory Authority.
About 84% of BF Borgers’ clients have been traded over-the-counter, meaning they do not meet the listing requirements of the big exchanges. Fewer than 30 are listed on Nasdaq or the New York Stock Exchange, according to Ideagen.
The PCAOB said BF Borgers more than doubled its clients between 2019 and 2021. But the company did not add more staff to handle the additional workload, the PCAOB said in an expanded inspection report, noting that just one person was responsible for 147 audits.
Deficiencies found
Congress created the PCAOB to oversee the work of auditors and restore investor confidence in corporate accounting by directing the Securities and Exchange Commission to appoint its members. Regulator inspections examine a small sample of client audits. They measure whether auditors had sufficient evidence to support their assessments of companies’ financial statements, providing a performance indicator for corporate directors and investors.
Negative regulator findings indicate flawed processes or technical violations of board rules.
The Washington-based audit regulator found problems with the company’s testing procedures for key measures such as revenue and accounts receivable, among other issues.
In 2022, the PCAOB imposed a two-year ban on one of BF Borgers’ audit directors for failures in audits of Chineseinvestors.com Inc., United Cannabis Corp. and China Pharma Holdings Inc. Shares of China Pharma fell by 99% in the last three years.