* Two auditors at KPMG face civil charges over bank audit
* Nebraska's TierOne Bank was inadequately reviewed-SEC
* KPMG says both auditors are still employed by firm
By Sarah N. Lynch
WASHINGTON, Jan 9 (Reuters) - U.S. regulators on Wednesday accused a partner and a manager at accounting firm KPMG of failing to properly audit the books of a failed Nebraska bank, the first time auditors have faced federal securities charges over their roles during the 2007-2009 financial crisis.
The Securities and Exchange Commission is seeking to censure KPMG partner John Aesoph, 40, and senior manager Darren Bennett, 35, alleging they failed to properly scrutinize the books of Nebraska-based TierOne Bank. The institution collapsed under the weight of loan losses during the financial crisis.
As part of Wednesday's action, the SEC plans to ask an administrative judge to consider barring the two auditors, either temporarily or permanently, from practicing before the commission.
Neither Aesoph nor Bennett could be reached, and lawyers for the two men did not return calls or emails seeking comment.
Tim Connolly, a KPMG spokesman, said both men remained employed with KPMG.
"Our partner and senior manager look forward to presenting the facts in support of the work that was performed under the circumstances at TierOne," Connolly said.
The SEC case against the auditors comes less than six months after the agency charged three TierOne Bank executives with understating losses during the crisis.
Two of the three have settled the case and a third is still fighting the charges.
In the latest matter, the SEC alleged Aesoph and Bennett did not properly review TierOne's loan and lease losses allowance and relied on "stale appraisals" and management's "uncorroborated representations" despite evidence that estimates were inconsistent with independent market data.
"Aesoph and Bennett merely rubber-stamped TierOne's collateral value estimates and ignored the red flags surrounding the bank's troubled real estate loans," said Robert Khuzami, head of the SEC's enforcement division, in a statement.
Auditors have been criticized for their roles in reviewing company financial statements leading up to the financial crisis, but few public cases have been brought by the government.
The New York state attorney general is locked in a legal battle with Ernst & Young over its auditing of Lehman Brothers Holdings, but the state hit a stumbling block last month, when a New York state judge ruled the attorney general has no authority to claim $150 million in fees the auditor earned from the work it performed.
The Federal Deposit Insurance Corporation also sued PricewaterhouseCoopers last fall and accused the firm of failing to detect fraud at Colonial Bank.
The Public Company Accounting Oversight Board (PCAOB), a body created by the 2002 Sarbanes-Oxley Act to police auditors in the wake of accounting scandals at Enron and Worldcom, has said it uncovered examples of audit weaknesses during the financial crisis.
Some of the audits are under investigation and could result in disciplinary action.
The SEC alleged that Aesoph and Bennett violated numerous PCAOB audit standards during the TierOne review.
A PCAOB spokeswoman declined to comment on whether it would seek to discipline the auditors because the law prohibits the organization from disclosing any details.
The PCAOB wants Congress to remove the secrecy provisions from the law so that companies won't be in the dark about potential audit problems.