The Securities and Exchange Commission has gone to court to force two accounting firms to comply with subpoenas for their clients' records.
The Accounting firms -- Arthur Andersen & Co. and Cherry, Bekaert & Holland -- refused to comply with the subpoenas issued in Florida by citing an accountant-client privilege law in that state.
In papers filed last Thursday in U.S. District Court here, the SEC said it issued the subpoenas as a part of a probe of tax shelters, including American Flowerland Inc., and its parent corporation, Capital Management Inc.
The SEC said about $70 million has been raised by the sale of interests in these partnerships to some 2,000 investors in more than 30 states. The agency alleged that in marketing these shelters, the managers "may have made or may be making materially false and misleading statements."
A spokesman for Arthur Anderson noted that the probe is a joint effort by the SEC and the Internal Revenue Service. He said Arthur Andersen resigned the tax shelter account in 1978.
He said that the former client had told the accountants not to comply with the subpoenas because of the Florida statute.
The SEC court papers challenge the power of the state law to limit the federal investigation.Further, the agency argues the state law doesn't apply in this case because the statute provides that there is no privilege when an accountant's services "were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew or should have known was a crime or fraud."
The commission said it is "investigating whether millions of dollars of funds of the partnerships may have been commingled and misappropriated" by the management of the tax shelters.