The financial regulator said the charges arise from Ernst & Young's "joint business relationships" with PeopleSoft and that as a result the accounting firm "violated the auditor independence requirements imposed by the Commission's rules and by generally accepted auditing standards."

Ernst & Young's private business relationships with PeopleSoft effectively compromised its position as a supposed independent auditor of the firm, the SEC noted, adding that it wants the accounting firm to desist from committing such violations.

The accounting group will also be required to disgorge the audit fees it was paid by PeopleSoft for the audits in question.

The SEC claims that Ernst & Young and PeopleSoft jointly developed a software product called 'EY/GEMS' for PeopleSoft which incorporated PeopleSoft data into software previously developed by the Big Five accountant.

Ernst & Young then allegedly agreed to pay PeopleSoft royalties from each sale of the EY/GEMS product to other clients.

In doing so, the SEC says Ernst & Young "closely coordinated and jointly marketed its implementation services with PeopleSoft, including reciprocal endorsements of each other, links to each other's websites, holding themselves out as business partners of one another, and sharing customer information, customer leads, and target accounts."

A hearing on the charges will be scheduled before an administrative law judge sitting at the SEC.