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The closure of the auditor behind former US President Donald Trump’s social media group threatens to derail a number of companies’ plans to go public and to force dozens of listed firms to delay their financial results.
The Securities and Exchange Commission this month charged BF Borgers — one of the US’s most widely used auditors, which was previously used by Trump Media & Technology Group — and its founder with falsely representing to clients that its audit work would comply with US standards. It accused it of “massive fraud” and said three-quarters of its audits were faulty.
Borgers’ sudden closure has sent shockwaves through the US small-cap sector at the height of earnings season. Nine microcap companies planning initial public offerings were clients of the now-disgraced firm, while around 170 public companies that had hired Borgers have suddenly found themselves in need of a new registered public accountant.
“The ripple effect has been big,” said Agnes Cheng, professor of accounting at the John T Steed School of Accounting at the University of Oklahoma. She likened Borgers to a pint-sized Arthur Andersen, the auditor which collapsed more than 20 years ago after becoming entangled in the Enron scandal.
The nine former Borgers clients — which include drone operator Droneify Holdings, UAE robotics company Micropolis Robotic and blockchain group TessPay — had hoped to raise a combined $150mn through public offerings, according to filings analysed by research and asset management firm Renaissance Capital, which provides IPO-focused exchange traded funds.
Each of these companies must now have their accounts rechecked by a new auditor. It is unclear how many have found replacements.
Florida-based Key Mining, which mines copper and titanium in Chile, was scheduled to list in New York this week but failed to do so. The company declined to comment. None of the other eight companies responded to requests for comment.
Filings made to the SEC also suggest that many listed companies that relied on Borgers will be late to file their results. The SEC said earlier this month that it would permit a “limited extension of the deadline” for affected companies.
Biotech group Next-ChemX said in a filing on May 6 that it was in the process of engaging another auditor, “along with the many other companies that find themselves in the same situation”, adding that there was a “real chance” it would be slow to file financial statements.
American Rebel, which makes safes in which to store firearms, was a former client of Borgers. Its president, Doug Grau, said the auditor’s collapse “came out of the blue”.
He added: “We were a day or two away from filing . . . in hindsight one could say ‘how did you not see this coming?’ But we didn’t. It puts a company like ours in a really tough position.”
Telecom group FullNet Communications, mining company Atlas Lithium and entertainment group Lingerie Fighting Championships were among more than 50 firms to officially dismiss Borgers this week. Of those, 14 have already found a replacement.
Trump’s TMTG has secured Semple, Marchal & Cooper as its new auditor.
Gold Rock Holdings, Eva Live and Bioforce Nanoscience separately wrote on Tuesday that they had hired Michael Gillespie & Associates. Borgers’ closure earlier this month “was obviously a significant event in this field so there’s been a lot of people talking”, Gillespie told the Financial Times.
Without admitting or denying the SEC’s findings, both Borgers and its founder Ben Borgers were fined and banned from practising before the regulator as an accountant. The firm’s “deliberate and systemic failure” to meet professional standards affected more than 1,500 company filings from January 2021 through June 2023, said the SEC. At least 16 companies ditched Borgers earlier this year.
“Better for a lot of companies to have to go through the inconvenience of finding a new auditor than for [Borgers] to go unpunished,” said a person with knowledge of the firm’s record.
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