As noted in this case, one Peat Marwick partner stated that his firm preferred to trust the people it was auditing. Should auditors trust their clients? If so, under what circumstances and to what extent?

Donald Sheelen and Vincent Golden pleaded guilty to federal mail and securities fraud charges in February 1989. When the company subsequently filed for bankruptcy, its common stock became essentially worthless. In July 1989, a competitor, Electrolux Corporation, acquired Regina. An Israeli company purchased Regina in 1994 and then sold it the following year to Philips Electronics, N.V., a large Dutch firm. Regina ceased operating as a separate entity after being acquired by Philips.

In May 1989, a federal judge handed Sheelen a one-year prison term, a sentence that he was allowed to serve in a halfway house. Golden received a similar sentence of only six months' duration. The federal judge also fined both men and placed them on probation; Sheelen was assessed a $25,000 fine, while Golden was fined $12,500. According to the judge, the lenient sentences were appropriate because both men had cooperated with authorities investigating the scandal. Before beginning his sentence, Sheelen contacted Regina's new chairman and asked if he could return to the company. The chairman reportedly responded with a question of his own: "Are you crazy?"⁵

One charge leveled at Sheelen and Golden by the SEC was that the former executives had repeatedly and intentionally misled the company's audit firm, Peat Marwick. As an example, the SEC pointed out that during the 1988 audit, Peat Marwick auditors discovered one of the ship‑in‑place sales transactions and notified Golden. Golden assured the auditors that no similar transactions had been recorded in Regina's accounting records.

In the enforcement release that focused on the Regina scandal, the SEC did not criticize Peat Marwick for failing to uncover the massive fraud masterminded by Sheelen and Golden. Nevertheless, several articles appearing in the financial press were critical of the audit firm. A Peat Marwick partner responded to such criticism by noting that "We're only human and prefer to trust the people we're auditing."