Ernst & Young Hit Hard in PeopleSoft Case

Updated from 5:28 p.m. EDT

Ernst & Young should pay the government $1.7 million and be barred from taking new auditing clients for six months for breaching a Securities and Exchange Commission conflict-of-interest regulation, an administrative law judge recommended Friday.

The proposed penalty stems from a joint marketing agreement the accounting firm had in the 1990s with PeopleSoft(PSFT Quote), a former client. The judge found that the pact violated SEC rules that forbid auditors from having anything more than a "consumer" relationship with businesses whose books they review.

No wrongdoing was alleged in its bookkeeping work for the software company. ...