Company Date - source Description Accounting Firm PwC Industry PwC Sector

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17 Νοε 2013 (πριν από 3 χρόνια και 10 μήνες)

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Company

Date
-

source

Description

Accounting
Firm

PwC
Industry

PwC
Sector

Fraud
Scheme

Sub
-
scheme

AIG Inc &
Brightpoint

9/12/2003


bna.com

“American International Group Inc. agreed to pay $10
million to settle Securities and Exchange Commission
charges i
n the U.S. District Court for the Southern District
of New York based on its role in developing a phony
insurance product used by Brightpoint Inc. to
misrepresent its financial position… Brightpoint and
three former Brightpoint officials also were charged

over
their alleged roles in the controversy. “

“AIG and Brightpoint also agreed to the entry of
administrative orders requiring them to cease and desist
from future securities law violations, and to comply with
certain remedial undertakings. One of the fo
rmer
Brightpoint employees, Phillip Bounsall, and an AIG
employee, Louis Lucullo, also agreed to the entry of
cease and desist orders.”

“According to the commission, AIG ‘developed and
marketed a so
-
called 'non
-
traditional' insurance product
for the stat
ed purpose of 'income statement smoothing,'
i.e., enabling a public reporting company to spread the
recognition of known and quantified one
-
time losses over
several future reporting periods. In this case,’ the agency
said, ‘the key to achieving the desired

accounting result
was to create the appearance of 'insurance.' ‘
Specifically, the SEC charged, AIG agreed to make it
appear that Brightpoint, the "insured," was paying
premiums in return for an assumption of risk by AIG. "In
fact, Brightpoint was merely
depositing cash with AIG
that AIG refunded to Brightpoint. AIG issued the
purported insurance policy to Brightpoint for the purpose
of assisting Brightpoint to conceal $11.9 million in losses
that Brightpoint sustained in 1998," the SEC contended.
As a re
sult of the transaction, Brightpoint's 1998 financial
statements overstated Brightpoint's actual net income
PwC (AIG’s
Auditors)



Ernst &
Young
(Brightpoint’s
Auditors)

GFS




CIPS
(Brightpoint
Inc)

Insurance




Retail &
Consumer

AIG
-

Financial
Misconduct
by a member
of Senior
Management
or the Board


Brightpoint
-



AIG
-

Conflicts of
Interest


Brightpoint
-




before taxes by 61 percent, the SEC contended.
Specifically, the SEC charged, AIG agreed to make it
appear that Brightpoint, the "insured," was pay
ing
premiums in return for an assumption of risk by AIG. "In
fact, Brightpoint was merely depositing cash with AIG
that AIG refunded to Brightpoint. AIG issued the
purported insurance policy to Brightpoint for the purpose
of assisting Brightpoint to concea
l $11.9 million in losses
that Brightpoint sustained in 1998," the SEC contended.”

“In resolving the civil charges, AIG agreed to pay a $10
million civil penalty; Brightpoint agreed to pay a $450,000
civil penalty; Bounsall agreed to pay a $45,000 civil
pe
nalty; and Delaney consented to the entry of a
permanent injunction against future securities law
violations, an officer/director bar, and an order that he
pay a $100,000 civil penalty.”

Akorn Inc.

10/10/2003


bna.com


Akorn's problems allegedly ste
mmed from books and
records deficiencies and inadequate internal accounting
controls related to the aging of receivables from its
customers.”


“In its order, the SEC alleged Akorn issued inaccurate
audited financial statements in its 2000 Form 10
-
K that
fa
iled to conform to generally accepted accounting
principles. Specifically, the company allegedly overstated
its accounts receivable balance by at least $7 million.”


“The order alleged Akorn not only failed to create a
reserve for its accounts receivable d
uring 2000, but also
failed to disclose the impairment to the receivables in its
10
-
K. The company allegedly should have posted a $2
million loss rather than its claimed $2 million profit.”



Akorn Inc., a pharmaceutical company, agreed as part of
a settle
ment of Securities and Exchange Commission
administrative proceedings to hire an independent
Deloitte &
Touche

CIPS

Pharmaceu
tical

Asset
Overstateme
nt

Inadequate
reserves or
failure to
adeq
uately
recognize
bad debts or
impairment of
receivables

consultant to report on and fix the company's internal
controls.”

American
Banknote
Corp.

8/22/2003


bna.com

































sec.gov
-

“A federal jury Aug. 6 convicted the former chief
executive officer of American Banknote Corp. and
Ame
rican Bank Note Holographics Inc. for his role in a
$100 million accounting fraud scheme.”

“The jury convicted Morris Weissman for participating in a
scheme involving the fraudulent inflation of ABNH's
revenues and earnings through improper, early revenue
recognition, and the use of the resulting false financial
figures to generate more than $115 million from investors
through an initial public offering of ABHN stock.”

“Until July 1998, ABNH was a wholly
-
owned ABN
subsidiary that made and sold holograms use
d on credit
cards and security devices, according to the release.
Evidence presented at trial established that Weissman
and two subordinate ABNH executives fraudulently
inflated ABNH's reported revenue and earnings for fiscal
years 1996, 1997, and through
the third quarter of 1998
by engaging in sham transactions and improper revenue
recognition techniques, and then lied to independent
auditors to conceal the scheme.”

“On the basis of the fraudulent financial information,
Weissman and his co
-
conspirators ca
used ABN to sell
ABHN common stock to investors for $115 million, which
far exceeded its true value, according to evidence
presented at trial.”

“He faces a maximum penalty of 30 years in federal
prison and millions of dollars in fines and restitution,
acco
rding to prosecutors.”

“In a related action, the Commission filed a settled
Deloitte &
Touche

TICE

Entertainm
ent &
Media

Improper
Revenue
Recognition

General
factors
tending to
indicate
premature
revenue
recognition

7/18/2003

injunctive action against ABN pursuant to which ABN,
without admitting or denying the allegations of the
Complaint, consented to an order permanently
restraining and enjoining it f
rom violating the antifraud,
periodic reporting, record keeping, and internal controls
provisions of the federal securities laws. The Commission
also instituted and simultaneously settled an
administrative cease
-
and
-
desist proceeding against
ABNH pursuant
to which ABNH, without admitting or
denying the Commission's findings, consented to an
order requiring it to cease and desist from committing or
causing any violation, and any future violation, of the
antifraud, periodic reporting, record keeping, internal

controls, and anti
-
bribery provisions of the federal
securities laws. In connection with this settlement the
Commission filed a civil penalty proceeding and ABNH,
without admitting or denying the allegations of the
Commission's Complaint, has consented to

pay a
$75,000 civil penalty for its violation of the anti
-
bribery
provisions of the federal securities laws.”

Amer
ican
Tissue Inc.

sec.gov
-
3/11/2003
















“[A]ccounting fraud perpetrated by paper manufacturer
American Tissue, Inc., ("American Tissue" or "the
Company") and three of its senior corporate officers:
Mehdi Gabayzadeh ("G
abayzadeh"), the Company's
former president, chief executive officer and director;
Edward I. Stein ("Stein"), its former executive vice
president and chief financial officer; and John Lorenz
("Lorenz"), its former vice president for finance.”


“In 2000 and

2001


a period during which American
Tissue offered and sold $165 million of securities to
investors


Defendants fraudulently and materially
inflated American Tissue's revenues and earnings in
periodic reports filed with the Commission by, among
other t
hings, improperly capitalizing expenses as assets,
overvaluing the Company's inventories and creating
millions of dollars in phoney revenue and accounts
Arthur
Anderson

CIPS

Forest &
Paper

Asset
Overstateme
nt









Improper
Revenue
Recognition

Improper
Capitalization
of expenses
as costs of
fixed assets
& Improper
Valuation of
Inventory




Bill & Hold
Arrangement
s




3/12/2003


bna.com






receivable through bogus "bill and hold" sales.”


“As a consequence of this accounting scheme, American

Tissue's annual report on Form 10
-
K for the fiscal year
ending September 30, 2000 reported net income for that
year of $24.5 million. In fact, American Tissue had
suffered a loss for the period of at least $3.6 million.
Similarly, the quarterly report fil
ed by American Tissue for
the third fiscal quarter of 2001, ending June 30, 2001,
overstated the Company's reported net income of $15.5
million for the first nine months of fiscal 2001 by at least
$21.8 million, thereby hiding a loss of at least $6.3
milli
on.”


Brendon P. McDonald ,“former senior auditor for the now
defunct Arthur Andersen LLP accounting firm was
arrested March 10 on an obstruction of justice charge
relating to the destruction of American Tissue Inc.
accounting records at Andersen's Melvill
e, N.Y., office.”
After McDonald was notified by the SEC of the fraud
“McDonald then directed Andersen auditors to forward
certain American Tissue documents to his home, delete
all company related e
-
mails, and to destroy certain
related documents, accordi
ng to prosecutors. On Sept. 4,
2001, McDonald arranged for a shredding company to
make an unscheduled trip to Andersen's Melville office to
shred numerous bins of American Tissue documents.”
He “faces a potential maximum sentence of 10 years in
prison, a
$250,000 fine, the payment of restitution, and
three years supervised release, according to the
release.”


The company is now bankrupt. The SEC investigation is
continuing.

Anicom Inc.

10/27/2003


bna.com

” The former chairman of now
-
defunct Anicom Inc. and
the concern's former chief fina
ncial officer (Donald
Welchko) were indicted by a federal grand jury Oct. 23
PwC

CIPS

Retail &
Consumer

Improper
Revenue
Recognition

Recording
Fictitious
Transactions

for allegedly engaging in a scheme to boost shareholder
value by inflating sales and revenues by tens of millions
of dollars.”


“In a same
-
day announcement, Patrick Fitzgerald, U.
S.
Attorney for the Northern District of Illinois, and other
government officials said the 26
-
count superseding
indictment alleged that Scott Anixter, Donald Welchko,
and various other co
-
conspirators created fictitious sales
of at least $24 million, under
stated expenses, and
overstated net income.”


“According to the government, the defendants engaged
in a scheme to deceive purchasers and sellers of Anicom
stock beginning in approximately early 1998 and through
September 2000. Prosecutors contended that, a
s part of
their fraud, Welchko, Anixter, and the others falsely
represented or caused financial information to be falsely
represented to the SEC and to outside auditors in at least
nine quarters between 1998 and 2000.”


“In the sales fraud portion of the a
lleged scheme, the
government said the defendants knowingly billed and
caused to be billed orders that customers had not placed
and orders that had not been shipped. Many of those
orders, prosecutors alleged, were at least hundreds of
times greater than An
icom's approximate average order
of $1,000.”


“The bank fraud charge, meanwhile, alleged that Anixter
and Welchko engaged in a scheme to defraud a
consortium of lenders.”


“The securities fraud charges carry a maximum 10
-
year
prison term and $1 million fin
e for each count. Making
false statements to financial institutions carries a 30
-
year
sentence on each count plus a $1 million fine. Making

Liability
Understatem
ent


Financial
Misconduct
by Member of
Senior
Management


Understating
Expenses

false statements to the SEC, meanwhile, carries five
years and $250,000, as does the obstruction charge.
Restitution

also is mandatory.”

Anika
Therapeuti
cs

1/14/2003


bna.com














7/28/2003


bna.com



Anika's improperly recognized “$1.5 million of revenue
from three "bill
-
and
-
hold" sales to a distributor… Anika,
according to the SEC, improperly recognized revenue at
the time of the invoicing, prior to delivery of the go
ods.”


“In the settlement, without admitting or denying the
charges against them, Anika Therapeutics, its former
chief executive officer J. Melville Engle, and its former
chief financial officer Sean Moran agreed to be subjected
to SEC cease
-
and
-
desist ord
ers.”


“The SEC, however, said John Canepa, of Andersen,
also caused Anika's violations by reviewing and
approving the firm's improper revenue recognition.”


“As a result of the improper recognition, Anika was forced
to restate financial statements for Mar
ch 2000. Further,
the SEC said, Canepa caused Anika incorrectly to restate
its financials by instructing the company to place certain
relevant revenues in the fourth quarter of 1998 rather
than the first quarter of 1999. That alleged error caused
Anika to
restate its earnings again in September 2001.
Canepa's actions, according to the commission staff,
constituted improper professional conduct under the
commission's Rules of Practice.”


“Without admitting or denying the commission's
allegations, Canepa cons
ented to the entry of an order
requiring him to cease and desist from violations of the
reporting and books and records provisions of the 1934
Securities Exchange Act.”

Arthur
Anderson

CIPS

Pharmaceu
tical

Improper
Revenue
Recognition

Bill and Hold
Arrangem
ent
s

AppOnline.
com, Inc.

sec.gov


3/12/2002


“From May 1997 through June 2000, AppOnline.com,
Inc. ("AppOnline"), a now
-
bankrupt mortgage company,
engaged in two simultaneous schemes that defrau
ded

GFS

Banking &
Capital
Markets

Liability
Understatem
ent,
Understating
Expenses,

Commercial











Sec.gov


6/12/2002









10/8/2003


bna.com

AppOnline's public investors. First, AppOnline diverted
more than $60 million that was supposed to be used to
fund mortgage loans in order to pay AppOnline's
operating expenses and, thereafter, covered up the truth
in its publicly
-
filed financial repor
ts. Second, AppOnline
manipulated the public market for AppOnline common
stock by paying bribes in exchange for three brokerage
firms recommending the purchase of AppOnline stock to
their retail customers, thereby defrauding those retail
customers and the
investing public.”


“The Commission's complaint alleges that Paul Skulsky
(a former de facto officer and control person of
AppOnline), Jeffrey Skulsky (AppOnline's former
president and a director), Capuano (AppOnline's former
Chief Executive Officer), Eise
le (AppOnline's former
Chief Financial Officer) and Casuccio (the audit partner
for the audit of AppOnline's December 31, 1997 and
1998 financial statements) participated in AppOnline's
financial reporting fraud.”


“Schneider consented to an order, under R
ule 102(e) of
the commission's Rules of Practice, suspending him from
appearing or practicing before the commission as an
accountant, with the right to seek reinstatement in five
years. In both settlements, Schneider consented to the
sanctions without adm
itting or denying the SEC's
allegations.”

Expenditures
and Liabilities
for an
improper
purpose

Bribery

Ardent
Communic
ations Inc.

9/15/2003


bna.com

“Stephen D. Pr
ice, a former vice
-
president for business
development at CAIS Internet Inc., now known as Ardent
Communications Inc agreed to the entry of a Securities
and Exchange Commission cease and desist order
based on his alleged concealment of material information
about a side agreement that resulted in his company's
materially misstating its financial results for the quarter
ended Sept. 30, 2000. Price also agreed to the entry of
an order by the U.S. District Court for the District of
Arthur
Anderson

TICE

InfoComm

Improper
Revenue
Recognition

Side letters
with
customers
and others

Columbia requiring him to pay

a $20,000 civil penalty.”

“Allegedly, in September 2000, Price agreed to sell more
than $1 million of Internet kiosks to a private company,
subject to an oral side agreement requiring CAIS to make
a multi
-
million dollar investment in the private entity.
A
ccording to the charges, Price knew that the customer
would return the kiosks to CAIS if the promised
investment were not made.”

Bristol
-
Myers
Squibb Co.

3/1
0/2003


PR
Newswire

Bristol
-
Myers Squibb Co. restated net sales and earnings
for 1999 through the first half of 2002, in part to correct
accounting for U.S. pharmaceutical sales to two
wholesalers, Cardinal Health Inc. and McKesson Corp.


“Bristol
-
Myers

Squibb Company announced the
restatement of its previously issued financial statements
for the years 1999 through 2001 and the first two
quarters of 2002. In the aggregate, the restatement
reduced net sales by $1,436 million, $678 million and
$376 million

for the years ended December 31, 2001,
2000 and 1999, respectively, and increased net sales for
the six months ended June 30, 2002 by $653 million. The
restatement also reduced net earnings from continuing
operations by $376 million, $206 million and $331

million
in the years ended December 31, 2001, 2000 and 1999,
while net earnings from continuing operations were
increased by $201 million in the six months ended June
30, 2002. The restatement primarily reflects a correction
of an error in the timing of
revenue recognition for certain
sales to two of the largest wholesalers for the U.S.
pharmaceuticals business. As a result of the restatement
for this matter, net sales were reduced by $1,096 million,
$475 million and $409 million for the years ended
Decem
ber 31, 2001, 2000 and 1999.”


Bristol
-
Myers said part of the problem that prompted the
restatement, first disclosed in April 2002, which arose
PwC

CIPS

Pharmaceu
tical

Improper
Revenue
Recognition

Sham related
party
transacti
ons

from a build
-
up of wholesaler inventories, primarily in
2000 and 2001. The build
-
up stemmed from sales
incentive
s the company had offered, usually near the end
of a quarter, as an incentive to wholesalers to purchase
enough products to meet Bristol
-
Myers's quarterly sales
projections.

Cablevision
Systems
Corp.

6/20/2003
-

Newsday

Cablevision discovered fraud at AMC Networks where
“employees improperly expensed items, totalling $6.2
million in 2002. The workers "inappropriately accelerated"
marketing expenses and fabricated invoices
. In such
cases, experts said, employees hypothetically might
claim the expense of printing brochures in December,
when the work won't be done until March of the next
year. This has the effect of lumping costs together in one
year so as to improve the nex
t year's bottom line. At
AMC, the problems involved expenses during 2000
-
03.”

KPMG

TICE

Entertainm
ent &
Media

Liability
Understatem
ent


Candie’s
Inc

5/1/2003


bna.com

“CEO Neil Cole and the former officers and director were
engaged in the scheme "using s
everal fraudulent
accounting practices" from August 1997 to spring 1999.
The others settling SEC administrative cases are: David
Golden, Candie's former chief financial officer; and
Maryann Brown, Candie's former manager of customer
service.”


“Both the c
ivil and administrative complaint alleged that
the parties named primarily employed two financial fraud
practices. First, the SEC said, O'Shaughnessy directed
employees to engage in a practice known as "bill
-
and
-
hold" that allowed Candie's prematurely to r
ecord
revenue from various orders calling for future delivery of
shoes… [T]he SEC said Candie's prematurely
recognized more than $4.4 million in revenue in fiscal
years 1998 and 1999 through improper bill
-
and
-
hold
practices and other irregular shipping.”


”The SEC further alleged that Brown played a "crucial
role" in carrying out the bill
-
and
-
hold practice, and that
Ernst &
Young

CIPS

Retail &
Consumer

Improper
Revenue
Recognition



















Bill and Hold
Arrangement
s, Recording
Fictitious
Transactions

Golden and Klein were aware of the scheme and allowed
the concern to make false income reports. Cole, the SEC
said, ignored red flags that Cand
ie's was engaged in the
practice and failed to prevent it.”


“[T]he SEC said Candie's improperly recognized more
than $3.1 million in revenue from two "illusory sales
transactions" with a barter company Levi controlled. In
these transactions, the SEC said,

Candie's claimed to
sell shoes to the barter company in exchange for a
combination of cash and advertising credits. The credits
recorded by Candie's, however, were improper because
Candie's either never shipped the shoes or shipped them
many months after
recording revenue.”


“Finally, Candie's recorded several unsupported journal
entries in the fourth quarter of fiscal year 1999 to
recognize $1.65 million in sales credits, the SEC said. It
alleged that Tucker agreed to permit Candie's to record
the credits

and assisted the concern in obtaining falsified
documentation of the credits.”


“In settling, Cole (CEO) agreed to pay a $75,000 fine and
to be subject to a cease
-
and
-
desist order, while Brown
(former mgr customer service) agreed to a cease
-
and
-
desist ord
er. In consenting to the injunctions,
O'Shaughnessy (former COO and director) agreed to a
$100,000 fine and to an officer
-
and
-
director bar; Tucker
(former director) agreed to a $25,000 fine, disgorgement
of $10,000, and a five
-
year officer
-
and
-
director bar
; and
Levi (principal of a barter company that engaged in
business with Candie's ) agreed to a $25,000 fine.”


“Candie's and Golden” (former CFO) “also agreed to
cease
-
and
-
desist orders.”

Carnegie
Internation
7/15/2003


bna.com

“Carnegie International Corp., and six current or former
executives were charged July 14 in the U.S. District


?(Manage
ment
Improper
Revenue
Sham
Related Party
al Corp.

Court for the Dist
rict of Columbia over their alleged roles
in a securities fraud scheme to misstate the company's
financial performance. “


“According to the commission, Gable, Farkas, and Pearl
carried out a financial fraud at Carnegie that resulted in
the company's impro
perly reporting revenue and income
on three transactions. It said the transactions related to
Carnegie's sale of a former subsidiary, Electronic Card
Acceptance Corp., and certain business assets of a
second subsidiary, Talidan Ltd., and its granting of
di
stribution rights to a telephone voice
-
recognition
product called MAVIS. The filings at issue are the
company's original and amended registration statements,
filed in October 1998 and February 1999, respectively,
and its original and amended 1998 Form 10
-
KSB annual
report, filed in April 1999 and January 2000,
respectively.”


“In particular, the commission contended, Carnegie's
senior management arranged for the sale of Carnegie
shares through management
-
controlled entities, and had
proceeds from these sal
es transferred to Carnegie as
purported payment on certain of the transactions.
According to the complaint, Carnegie's accounting for the
transactions, and the company's failure to make required
disclosures regarding the transactions, including the
involve
ment of related parties, was not in accordance
with generally accepted accounting principles.”

Consulting
Services)?

Recognition

Transactions

Charter
Communic
ations

7/25/2003


USA
Today

“Former chief ope
rating officer David Barford and former
chief financial officer Kent Kalkwarf were charged with 14
counts of mail fraud, wire fraud and conspiracy to commit
wire fraud.”


“The indictment says Kalkwarf and Barford added $17
million to revenue and cash flow
numbers in 2000
through a phony ad sales deal with an unnamed set
-
top
Arthur
Anderson

TICE

Entertainm
ent &
Media

Improper
Revenue
Recognition

Recording
Fictitious
Transactions


decoder maker. They allegedly persuaded the company
to tack $20 onto the invoice price of each box. But
Charter held on to the cash and recorded it as an ad
sale. Justice officials also

accused all four men with
helping hide Charter's subscriber losses in 2001. They
allegedly did that by disregarding some cancellation
orders until the end of a quarter, not removing
disconnected customers from the official rolls, counting
as subscribers p
eople getting service free and making up
names.”


David McCall (former senior vice president) pleaded
guilty to a single count of wire fraud. James Smith
(former senior vice president) faces eight counts of wire
fraud and conspiracy. If they are convicte
d they will have
penalties of as much as five years in prison and a
$250,000 fine for each count of wire fraud.

ClearOne
Communic
ations

Sec.gov
-

1/
16/2003

“Beginning with the fiscal quarter ended March 31, 2001,
ClearOne in its Forms 10
-
Q and Forms 10
-
K for the fiscal
years ended June 30, 2001 and June 30, 2002
overstated revenues, income and accounts receivable by
recording certain transactions with

its distributors and
resellers as sales when in fact the transactions did not
meet the requirements of Generally Accepted Accounting
Principles ("GAAP") for sales. At the end of each quarter,
ClearOne would "sweep the floor" of its inventory, stuff
the d
istribution channels with ClearOne products, and
force distributors to accept product that they did not want.
ClearOne would then enter into undisclosed verbal
agreements with its distributors and resellers whereby
the distributors and resellers agreed to
pay for the
ClearOne merchandise as it was sold rather than in
accordance with the written contracts ClearOne had with
those entities.”


By August 13 2002 “approximately $11.5 million of
inventory had been stuffed into the distribution channel.
Ernst &
Young

TICE

InfoComm

Improper

Revenue
Recognition

Channel
Stuffing,
Contingent
Sales

In fact, Cl
earOne had experienced essentially no growth
in sales.”


“For the fiscal year ended June 30, 2002, ClearOne's
improper revenue recognition policies, channel stuffing
and secret agreements with distributors and resellers
resulted in at least a 23% oversta
tement of ClearOne's
net income.”


“Those materially misstated financial statements were
included in the Forms 10
-
Q filed with the Commission for
the quarters ended March 31, 2002, September 30,
2001, December 31, 2001, March 31, 2002, and
September 30, 20
02 and in the Forms 10
-
K for the fiscal
years ended June 30, 2001 and June 30, 2002. The
materially misstated financial statements were also
incorporated by reference in a Form S
-
3 registration
statement filed with the Commission.”


For the first fiscal qu
arter of 2003, ended Sept. 30, the
company lost $1.2 million on $13 million in sales. That
was the last time ClearOne released figures; there are no
plans to restate earnings until an internal investigation is
complete.

COHR Inc.

2/13/2003


bna.com

“Three former COHR Inc. officials settled securities fraud
charges Feb. 10 in the U.S. District Court for the District
of Columbia over their revenue recognition practi
ces.”


“Allegedly, the fraud was carried out between 1996 and
1998 by COHR's senior management at the time: Umesh
Malhotra, the concern's former chief financial officer;
former Chief Executive Officer Paul Chopra; and David
Manigault, COHR's former senior
vice president and chief
information officer.”


"’The fraud included recording fictitious revenue,
improper capitalization of expenses, improper reduction
Deloitte &
Touche

CIPS

HealthCare

Improper
Revenue
Recognition,
Asset
Overstateme
nt

General
factors
tending to
indicate
premature
revenue
recognition,
Inade
quate
reserves,
Improper
capitalization
of expenses

of reserves, and premature recognition of revenue,’ the
SEC contended.”


“Malhotra agreed to pay a ci
vil penalty of $32,500, to be
permanently barred from serving as an officer or director
of a public company, and to the entry of an order
suspending him SEC practice as an accountant.”


“Manigault also agreed to pay a $25,000 civil penalty, the
SEC noted.
No disgorgement or civil penalties were
assessed against Chopra based on his financial
condition.”

Computer
Associates
Internation
al Inc.

10/13/2003


The
Asian Wall
Street
Journal







10/10/2003


New York
Post


The company acknowledged for the first time that it
committed accounting errors in its
revenue booking,
which is under investigation by U.S. federal prosecutors
and the U.S. Securities and Exchange Commission. Mr.
Schuetze's probe discovered that the company had been
booking revenue for contracts before they had been
signed in the year ended

March 31, 2000, shifting that
revenue to earlier quarters. No amounts were given, and
the company hasn't said whether it will restate its
revenue or profit as a result.”


“Computer Associates is under investigation by the
Justice Department and the SEC fo
r accounting
irregularities. The company is accused of improperly
recording sales to inflate the stock price, thus triggering
$1.1 billion in executive bonuses.”

KPMG

TICE

Technology

Improper
Revenue
Recognition,
Financial
Misconduct
by Member of
Senior
Ma
nagement

General
Factors
tending to
indicate
premature
revenue
recognition

Con Agra
Foods Inc.

6/30/2003


dow
jones
business
news

“A federal appeals court
ordered a trial in a lawsuit filed
on behalf of shareholders against ConAgra Foods Inc.
(CAG) over
fictitious sales and misstated earnings at a
subsidiary
.
ConAgra announced in May 2001 that
accounting problems at its subsidiary, United Agri
Products, would result in $120 million in lower earnings
for 1998 through 2000
.
The complaint alleges that
thro
ughout the fiscal years 1998, 1999, and 2000, United
Agri Products reported sales of goods that hadn't yet
Deloitte &
Touche

CIPS

Retail &
Consumer

Improper
Revenue
Recogn
ition

Recording
Fictitious
Transactions

taken place and reported sales to nonexistent customers.

Roughly $287 million in revenue was manipulated over
the three years, which caused the earn
ings statements
for both companies to be overstated.

ConAgra officers were allegedly aware of the fraud and
‘either encouraged it or turned a blind eye to it,’ according
to court records.”



Cutter &
Buck

8/8/2003


bna.com




















sec.gov
-
8/7/2003

“In its civil case, the commission said that in the final
days of April 2000, Hilton negotiated deals with three
distributors under which Cutter

would ship them a total of
$5.7 million in products. Hilton, meanwhile, struck side
deals with the distributors, the SEC said, assuring them
they had no obligation to pay for the goods until
customers were found by Cutter to pay for the items.
The SEC sa
id that because Cutter had an ongoing
obligation to complete the sales, it was ineligible under
generally accepted accounting principles to recognize the
revenue. Due to the improper recognition, Cutter
overstated revenue for the quarter and fiscal year in

SEC
filings and press releases, the commission said.
Furthermore, the SEC's order said Lowber learned by
late 2000 that the distributors in question were operating
as Cutter warehouses and that the revenue recognition
had been improper. Rather than resta
te the revenues,
however, the SEC said, he took steps to conceal the
transactions from Cutter's auditors and board of
directors.”


“Cutter's former Chief Financial Officer Stephen Scott
Lowber pled guilty to a felony criminal offense of being
an accessory

after the fact to wire fraud. In addition, the
Commission filed civil securities fraud charges against
Lowber as well as Cutter's former Regional Sales Vice
President David Andrew Hilton. Without admitting or
denying the allegations of the Commission's co
mplaint,
Lowber and Hilton agreed to the entry of antifraud
Ernst &
Young

CIPS

Retail &
Consumer

Improper
Revenue
Recognition

Contingent
Sales

injunctions and to pay civil penalties of $50,000 and
$25,000, respectively. Lowber also consented to the
entry of an order barring him from serving as an officer or
director of a public company,
and an order prohibiting
him from practicing before the Commission as an
accountant.”


“Cutter & Buck, without admitting or denying the
Commission's findings, agreed to an order that it cease
and desist from further violations of the corporate
reporting, b
ooks and records and internal controls
provisions of the federal securities laws.”

Dynegy
Inc.

6/20/2003


bna.com

“A federal grand jury in Houston June 10,2003 returned a

six
-
count criminal indictment against three former Dynegy
Inc. executives on charges of conspiracy, securities
fraud, mail fraud, and wire fraud related to their roles in
devising a scheme to withhold the truth about the
company's fiscal condition by maki
ng $300 million in
loans look like cash flow in financial statements.”


“The indictment charged Olis, Foster, and Sharkey with
conceiving and executing a plan called "Project Alpha" to
borrow money, but made it appear that the loan was cash
flow from "risk

management activities" rather than debt.
The plan involved a complex series of natural gas sales
between Dynegy and a special purpose entity (SPE)
called ABG Gas Supply over a 60
-
month period. Project
Alpha was to be funded with loans from
Citibank/Salomo
n Smith Barney, Deutsche Bank, and
Credit Suisse First Boston, which expected and required
full repayment with interest.”


“According to the indictment, during the nine
-
month
period ending on Dec. 31, 2001, Project Alpha created
the appearance of improved
cash flows for Dynegy by
having the SPE buy natural gas at market price, then
resell the gas to Dynegy at a discount. In turn, Dynegy
Arthur
Anderson

CIPS

E
nergy,
Utilities &
Mining

Liability
Understatem
ent, Improper
Revenue
Recognition


resold the gas on the open market at market price,
generating about $300 million in cash flow. Over the next
51 months of
the contract, the SPE fully repaid the loan
by buying natural gas at market price and then reselling it
to Dynegy at a premium above market price so that
Project Alpha lenders would be fully repaid.”


“If found guilty of the securities fraud charge, each o
f the
defendants could face up to 10 years in prison and a $1
million fine, Shelby said. Each conspiracy, mail fraud,
and wire fraud count carries a maximum penalty of five
years in prison without parole plus a $250,000 fine.”


“In 2002, Dynegy agreed to p
ay $3 million in the same
court to settle SEC financial fraud charges over its
accounting for Project Alpha. In a separate administrative
proceeding, the concern also agreed to cease and desist
from future securities law violations.”

Enterasys
Networks
Inc. &
Aprisma
Manageme
nt
Technologi
es, Inc.

sec.gov


2/26/2003

SEC concluded that “from March 2000 through
December 2001 (the "relevant period"), Enter
asys and
Aprisma (majority owned subsidiary of Enterasys)
engaged in improper accounting practices, including
entering into a number of transactions for which they
knowingly, or recklessly, recognized revenue under
circumstances where revenue should not ha
ve been
recognized under Generally Accepted Accounting
Principles. During the relevant period, Enterasys and
Aprisma entered into sales transactions in which their
customers were given the right to return or exchange the
products being sold, or their cust
omers were given the
right to cancel the underlying transaction. In many of the
transactions involving return rights, the purchasing party
was not required to pay Enterasys or Aprisma until it
resold the products to end
-
users, and could return the
products

in the event it was unable to locate end
-
user
purchasers. Although it was improper under GAAP to
recognize revenue for sales that were subject to return,
KPMG

TICE

Technology

Improper
Revenue
Recognition

Agreements
or policies
that grant
liberal return,
exchange or
refund
policies,
Early delivery
of products,
side
letters
with
customers

exchange, or cancellation rights, Enterasys and Aprisma
recognized revenue for these transactions dur
ing the
relevant period.”


“During the relevant period, Enterasys and Aprisma
entered into several transactions in which they invested
cash in, and/or gave credits for their products to, other
companies in return for an equity or debt interest and the
othe
r company's agreement to purchase their products
either directly or indirectly through a third party reseller.
Although several of these investment transactions lacked
economic substance, Enterasys and Aprisma improperly
recognized revenue for these invest
ment related sales
during the relevant period. Moreover, Enterasys and
Aprisma improperly overstated the value of their
investment interests with respect to some of these
transactions during the relevant period.”


“During the relevant period, Enterasys and

Aprisma
entered into transactions in which they purchased
products or services from other companies in return for
the other company's agreement to purchase a
comparable dollar value of their products at or about the
same time. In these "swapping" arrangem
ents, Enterasys
and Aprisma essentially exchanged products or services
with other companies without having a legitimate
business purpose for the exchange. Although improper
under GAAP, Enterasys and Aprisma recognized
revenue for these sales during the rel
evant period.”


“On the final day of various quarters during the relevant
period, Enterasys utilized intermediate shippers to hold
products until final shipping arrangements with
Enterasys's regular shippers could be made on the next
business day. In these

transactions, the risk of loss for,
and title of ownership to, the products remained with
Enterasys while the products were held by the
intermediary shippers. Although improper under GAAP,
Enterasys prematurely recognized revenue for these
transactions du
ring the relevant period.”


“At the end of various quarters during the relevant period,
Enterasys increased its cash account and accounts
payable by the total value of its outstanding checks that
had not yet been cashed by others. It was improper
under GAA
P for Enterasys to adjust the foregoing
accounts under these circumstances. At the end of
various quarters, Enterasys also improperly increased its
cash account and decreased its accounts receivable by
recording payments that it had not received until shor
tly
after the end of the quarter.”


Enterasys and Aprisma agreed to an SEC consent
decree.

Freddie
Mac and
Fannie
Mae

6/24/2003


bna.com



















“Freddie Mac violated accounting and reporting rules in a
series of transactions in 2000 and 2001, a report to
Freddie Ma
c's board of directors said July 23, citing an
"anemic" performance by the government
-
chartered
company's corporate accounting section and efforts by
Freddie Mac to tailor its reporting to fit earnings
objectives.”


“Overall, the report said, transaction
s in response to the
changes wrought by FAS 133 resulted in unintentional
misapplications of Generally Accepted Accounting
Principles. In some cases, the report said, accounting
treatment was backed by Arthur Andersen. Another set
of transactions that too
k place during the summer of
2001 had the effect of shifting $420 million in operating
earnings from 2001 into later years. According to the
report, tape recordings of traders showed that those
transactions
--
a series of swap deals that reduced net
interest

income in the short term, only to drive it up later
--
were clearly understood as a way to shape earnings
PwC

GFS

Banking &
Capital
Markets

Improper
Revenue
Recognition


















7/24/2003

The New
York Times

reports.”


The SEC's investigation has focused on Freddie Mac's
accounting for hedge instruments, including derivatives.
Specifically, regulators hav
e been looking into when
Freddie Mac has booked income for certain derivatives
transactions.


“Freddie Mac, which for most of the last few years has
faced the uncommon problem of having profits that
substantially exceeded forecasts, did not want to deviate

too much from those expectations, the report said. So it
used techniques to make its main business of insuring
and buying mortgages seem less profitable and to create
a reserve of earnings for later years. “


“Freddie Mac said it had understated its preta
x profits by
as much as $6.9 billion in 2002 and previous years as a
result of serious accounting problems, and the company
ousted its three top executives.”


“The techniques themselves fell into several categories,
according to the report. Late in 2000, t
he company found
itself with a large one
-
time gain because of an accounting
change mandated by the Financial Accounting Standards
Board.Instead of reporting the gain to investors, the
company sought ways to defer it over time. Senior
managers, including Mr
. Parseghian, approved a strategy
that included selling and repurchasing some bonds in its
portfolio, a transaction that had no economic effect but
created a one
-
time loss to offset the gain. Over time, the
loss would be reversed into the company's income,

according to the report. The company intended the
transaction to comply with standard accounting rules, but
it did not, according to the report. In another effort to
hide its one
-
time gain in 2000, the company stopped
using market prices for some of the
derivatives in its
portfolio.”

Gemstar


TV Guide
Internation
al Inc.

6/20/2003


bna.com

The SEC’s complaint charged Yuen (former Gemstar
chairman and chief executive officer) and Leung (t
he
company's former chief financial officer) with
manipulating Gemstar's financial results in three ways:

-

“by recording revenue under expired, disputed,
or nonexistent agreements, and by improperly
reporting it as IPG licensing and advertising
revenue;

-

by
recording amounts from related transactions
as if they were not related, some of which
included "round
-
trip" transactions, and non
-
monetary payments, and recording this as IPG
advertising revenue in order to inflate the figures;
and

-

by switching revenues f
rom its media and
licensing business sectors to its IPG advertising
sector in order to show dramatic growth and
acceptance of IPG advertising, when in fact,
such growth and acceptance ‘did not exist.’”


“The defendants caused Gemstar to overstate its
reven
ues by at least $223 million in that March 2000
through September 2002 period, the Commission
added.”


The SEC's complaint charges Yuen and Leung” with
securities fraud, lying to the auditors, falsifying Gemstar's
books and records, and aiding and abetting

Gemstar's
reporting, record
-
keeping, and internal controls violations
of the federal securities laws.”

KPMG

TICE

Entertainm
ent &
Media

Improper
Revenue
Recognition

Recording
Fictitious
Transactions,
Roud
-
tripping

Golden
Bear Golf
Inc.

8/29/2003


bna.com

“Federal prosecutors Aug. 28 announced that John R.
Boyd, president of a subsidiary of publicly traded Golden
Bear Golf Inc., pled guilty, to Count One of the indictment
charging him with conspiracy to commit securities fraud,
before Judge Daniel T.K. Hur
ley of the U.S. District Court
for the Southern District of Florida to securities fraud
Arthur
Anderson

CIPS

Retail &
Consumer

Improper
Revenue
Recognition,
Financial
Misconduct
by a Member
Early
Delivery of
Products,
Recording
Fictitious
Transactions,
charges. Boyd pled guilty to Count One of the indictment
charging him with conspiracy to commit securities fraud,
a violation of Title 18, United States Code, Section
371.”

“Sentencing is scheduled for Nov. 7. Boyd faces a
maximum term of five years imprisonment. Co
-
defendant
Chris Curbello pled guilty on June 4 to conspiring with
Boyd to commit securities fraud. Curbello's sentencing is
scheduled for Oct. 17 in the sam
e court.”

“In 1997 and 1998, Boyd and Curbello allegedly engaged
in a wide
-
ranging scheme to artificially inflate Paragon's
(subsidiary of Golden Bear Golf Inc) revenues and profits
and to make it look like Paragon had substantially more
work than it did.

Prosecutors charged that Boyd and
Curbello initiated the scheme to create the appearance
that they were more successful in managing Paragon
than they were in order to justify higher salaries,
bonuses, and increased stature in Golden Bear. Initially,
Boyd
and Curbello artificially accelerated Paragon's
revenues and profits by overstating the amount of
progress they were making on Paragon's contracts,
according to the indictment. However, the scheme failed
to generate the results Boyd and Curbello promised

Golden Bear management. As a result, prosecutors
charged, they widened the scheme to include (a)
underbidding for jobs in order to win them, regardless of
whether or not they were profitable, (b) overstating the
value of Paragon's contracts by tens of mil
lions of dollars,
and (c) concealing millions of dollars of losses and
recording revenue and profits on contracts that did not
exist. All along, Boyd and Curbello allegedly tried to
conceal the fraud by lying to Golden Bear and its
auditors, ultimately rec
ording a series of fictitious
accounting entries to hide the fact that Paragon's results
of Senior
Management

Conflicts of
Interest

were grossly inflated by the fraudulent scheme.”

“At year
-
end 1997, Golden Bear restated its loss by more
than 800 percent from $2,931,000 to $24,699,000. For
the fir
st quarter of 1998, Golden Bear restated its loss
from $788,000 to $7,259,000.”

Golden Bear’s engagement partner on the audits (1996
and 1997) and quarterly reviews of the consolidated
financial statements of Golden Bear Golf, Inc, Michael
Sullivan (of Art
hur Anderson), was found by the
Commission to have engaged in improper professional
conduct for purposes of Rule 102(e)(1)(ii) of the
Commission's Rules of Practice.

HealthSout
h

Sec.gov
-
3/20/2003














5/2/2003


bna.com

The SEC’s complaint “alleges that since 1999, at the
insistence of Scrushy,

HRC systematically overstated its
earnings by at least $1.4 billion in order to meet or
exceed Wall Street earnings expectations. The false
increases in earnings were matched by false increases in
HRC's assets. By the third quarter of 2002, HRC's assets
w
ere overstated by at least $800 million, or
approximately 10 percent. The complaint further alleges
that, following the Commission's order last year requiring
executive officers of major public companies to certify the
accuracy and completeness of their co
mpanies' financial
statements, Scrushy certified HRC's financial statements
when he knew or was reckless in not knowing they were
materially false and misleading.”


“According to the information, beginning in about 1996 a
group of HealthSouth senior office
rs recognized that
HealthSouth's financial results were not producing
sufficient earnings per share to meet or exceed the
expectations of Wall Street analysts. That group,
including Beam and the then
-
CEO of HealthSouth,
allegedly engaged in a scheme artifi
cially to inflate
HealthSouth's publicly reported earnings and falsify
Ernst &
Young

CIPS

HealthCare

Improper
Revenue
Recognition,
Asset
Overstateme
nt


reports of HealthSouth's financial condition.”


“Their actions allegedly caused HealthSouth to file
annual and quarterly reports with the Securities and
Exchange Commission that materia
lly misstated
HealthSouth's net income, revenue, earnings per share,
assets, and liabilities.”


“According to the criminal charge, Beam and other senior
officers of the company provided the false reports of
HealthSouth's financial condition to banks and ot
her
lenders when applying for extensions of credit.
Prosecutors charged that in April 1996, HealthSouth
entered into a restated credit agreement with a syndicate
of 32 lenders from around the world, including AmSouth
Bank. The lenders extended a line of cr
edit totaling $1.25
billion to HealthSouth, including a $55 million loan from
AmSouth in exchange for quarterly and annual financial
statements that were to be certified as true and
accurate.”


“The bank fraud charge carries a maximum sentence of
30 years
in prison and a fine of up to $1 million.”


“In addition to charges against HealthSouth and Scrushy,
the investigation has resulted in guilty pleas by a number
of HealthSouth officials. HealthSouth CFO William
Owens and former CFO Weston Smith pleaded guil
ty to
accounting fraud charges in March. Then, several weeks
ago, the company's vice president of finance, Emery
Harris, also pleaded guilty to accounting fraud charges.
At the same time, five HealthSouth officers were charged
and pleaded guilty in connect
ion with accounting fraud,
including the company's chief information officer Kenneth
Livesa.”


“On April 8, prosecutors charged former HealthSouth
Chief Financial Officer Michael Martin with conspiracy to
commit wire and securities fraud and filing false
i
nformation with the SEC. On April 21, HealthSouth's
treasurer, Malcolm McVay, faced the same charges.”

Homestore
Inc.






9/22/2003


bna.com

Three former senior executives
of Homestore Inc.
arranged "round
-
trip" transactions for the sole purpose of
artificially inflating Homestore's revenues in order to
exceed Wall Street analysts' expectations.


“In the release, the commission said the defendants
allegedly structured and
negotiated fraudulent "round
-
trip" transactions to artificially inflate Homestore's online
advertising revenues to exceed analysts' expectations.
The transactions "had no economic substance," the SEC
contended.”


“It alleged that in the round
-
trip transact
ions, Homestore
paid inflated sums to various vendors for services or
products; the vendors, in turn, allegedly used the funds to
buy advertising from two media companies. "The media
companies then bought advertising from Homestore, and
Homestore improperl
y recorded the money it received
from the sale of such advertising as revenue in its
financial statements," the agency said.”


“It said the essence of these transactions "was a circular
flow of money by which Homestore recognized its own
cash as revenue. A
ll of the Homestore employees
charged today were directly involved in setting up these
illegal round
-
trip transactions," the commission added.”


“In particular, the SEC recapped, the following three
defendants were named in both the civil action and the
cr
iminal information:

-

Thomas Vo, a manager in Homestore's Strategic
Alliances Group
--
SAG
--
from January 2001 until
January 2002;

PwC

TICE

Technology

Improper
Revenue
Recognition

Round
-
tripping

-

Sailesh Patel, a director of business
development at Homestore from August 2000
until October 2001; and

-

Jessica McLellan, a manage
r in Homestore's
SAG from January 2001 through April 2002.

Vo and Patel were charged with one count of wire fraud,
and Jessica McLellan was charged with one count of
securities fraud, the release noted.”


“In addition, the SEC charged the following four
de
fendants:

-

Sophia M. Kabler, Homestore's senior vice
president of advertising sales throughout 2001;

-

Adam S. Richards, Homestore's manager of
financial planning from February 2001 through
January 2002;

-

Brian Wiegand, the chief executive officer and a
direct
or of NameProtect; and

-

David Slayton, the chief financial officer and a
director of NameProtect Inc., a private company
headquartered in Madison, Wis., that provides
trademark research, brand protection, and brand
monitoring services. According to the SEC'
s
complaint, NameProtect was one of the vendors
that participated in the round
-
trip transactions.

Previously, it noted, Homestore's former chief operating
officer, John Giesecke; its former chief financial officer,
Joseph Shew; its former vice president of

transactions,
John DeSimone; and its former Finance Department
manager, Jeffrey Kalina, pleaded guilty to criminal
charges based on their alleged roles in the controversy.”

Inso Corp.

10/03/
2003


bna.com

“According to U.S. Attorney Michael J. Sullivan, the
government planned to prove that Richard P. Vatcher
(former vice
-
president of Inso
Corp (later known as eBT
International)) arranged bogus transactions at the end of
the first three quarte
rs of 1998 designed to overstate
Inso's actual revenues for those periods. In several
Ernst &
Young

TICE

Technology

Improper
Revenue
Recognition

Recording
Fictitious
Transactions,
Side letters
with
customers
instances, Sullivan said, Vatcher entered into
undisclosed side agreements with distributors whereby
the distributors would not have to pay for their purchases
of Inso pr
oducts unless an actual end
-
user customer
agreed to purchase those products.”


“Sullivan said those transactions enabled Inso
prematurely to record revenue for sales that had not
been completed. Inso's quarterly submissions to the SEC
reported fraudulent
ly inflated revenue figures, which were
based on the bogus sales to distributors, he explained.”


“Vatcher is scheduled to be sentenced Jan. 12, 2004. He
faces up to 10 years in prison and a $1 million fine on
each count of the information.”


“Last year,

Vatcher settled a civil complaint with the
Securities and Exchange Commission charging that he
engaged in a scheme that falsely boosted the company's
revenue by $3.6 million for the first three quarters of
1998.”


“In at least six transactions, the SEC sa
id, Vatcher
obtained sales orders from foreign customers by granting
the side arrangements allowing the clients to cancel the
sales. The fact of those side arrangements made the
transactions ineligible for booking, the SEC said. Without
admitting or denyin
g the allegations, Vatcher agreed to
be barred from future violations and to pay a $25,000 fine
to settle the SEC complaint.”

and othe
rs
(distributors)

Just For
Feet,Inc &
Footstar
Inc.

5/13/2003


bna.com






“From approximately December 1996 to November 1999,
Gilburne and others
allegedly devised a scheme
artificially to inflate Just for Feet's financial condition
through the improper recognition of income from the
concern's sole advertising agency. Beginning in about
1996, the company's CEO would conduct meetings at the
end of ev
ery quarter at which he would describe analysts'
Deloitte &
Touche

CIPS

Retail &
Consumer

Improper
Revenue
Recognition,
Asset
Overstateme
nt


Fictitious
Receivables


























Sec.gov
5/16/2003











expectations of the company's earnings. Allegedly, at
these meetings, the CEO would lay out a list of"goods"
--
items that produced or added income
--
and "bads"
--
items
that reduced income. Employees allegedly w
ere directed
to increase the "goods" and decrease the "bads" in order
to meet his earnings expectations and those of Wall
Street.”


“According to the charges, Just for Feet's CEO would
meet with the president of Rogers Advertising just before
the end of Ju
st for Feet's fiscal year and agree that
Rogers would pay the agency commissions it would earn
for the upcoming year, minus a monthly retainer, back to
Just for Feet
--
the so
-
called "Rogers Rebate.” Allegedly,
Gilburne, the CEO, and others knew that the Ro
gers
rebate represented income earned by and paid to Just for
Feet in the following fiscal year. Nonetheless, they
caused Just for Feet to record the rebate as a receivable
due in the current fiscal year. Prosecutors said that when
insufficient rebates wou
ld not support the previously
booked receivable, Just for Feet authorized Rogers
Advertising to submit bogus bills to Just for Feet to
generate income for Rogers Advertising to pay down the
receivable on Just for Feet's books.”


The Commission's complaint
alleges that: “from at least
1997 through its 1999 demise, Just for Feet substantially
overstated its assets and income through the use of
bogus receivables from the Company's outside
advertising agency. One such receivable of $3 million
comprised 8.7% of
Just for Feet's $34.2 million in
reported pre
-
tax income in its Form 10
-
K annual report
for fiscal 1997. A second bogus receivable of $5.3 million
comprised 12.3% of Just for Feet's $43.3 million in
reported pre
-
tax income in its Form 10
-
K annual report
fo
r fiscal 1998.”



Sec.gov
5/15/2003











9/15/2003
-
Reuters







“Specifically, the Commission has charged Gilburne with
violating Sections 10(b) and 13(b)(5) of the Securities
Exchange Act of 1934 ("Exchange Act") and Rules 10b
-
5
and 13b2
-
1 thereunder, and aiding and abetting Just for
Feet's violations

of Sections 13(a) and 13(b)(2)(A) of the
Exchange Act and Rules 12b
-
20, 13a
-
1 and 13a
-
13
thereunder. To settle the Commission's lawsuit, Gilburne
agreed, without admitting or denying the Commission's
allegations, to a permanent injunction, payment of
$75,
000 in civil penalties and the entry of an officer and
director bar.”


FOLLOW
-
UP (9/15/03) Footstar Inc (Parent of Just For
Feet) “said it will restate its earnings from 1997 through
June 2002, with an expected reduction of $48 million to
$53 million over

that period before minority interest and
taxes. The investigation found $35.8 million in errors in
how accounts payable were reconciled to the general
ledger each month and about $10.3 million related to
integration issues following the company's acquisi
tion of
Just for Feet, the company said.”

L90 Inc
(MaxWorld
wide Inc)
and
WebMillion.
com

9/26/2003


bna.com

“The civil and criminal complai
nts allege that Thomas A.
Sebastian, who worked as CFO for L90 Inc. (now known
as MaxWorldwide Inc) from July 1999 to March 2002,
helped the company's subsidiary, known as
webMillion.com, engage in a series of advertising barter
deals with other Internet c
ompanies, and then record the
amounts of the barters as revenue without revealing that
the money came through barter transactions, the
statement explained.”

“Typically, webMillion.com swapped checks with the
other firms for the purported "value" of the bar
tered
advertising, and then simply booked the value as
revenue, the three agencies noted. L90 would frequently
insert a "sham" third party into the check swap in order to
hide the true nature of the barter deals from the firm's
Arthur
Anderson

TICE

Entertainm
ent &
Media

Improper
Revenue
Recognition

Sham related
party
transactions


auditors and the investing p
ublic, they added.”

“Using the fraudulent barter deals, L90 overstated its
revenues in third quarter 2000 through third quarter 2001
by at least $4.3 million.”

“The criminal complaint, which was filed Sept. 24 in
federal district court in Los Angeles, char
ged Sebastian
with conspiring to commit securities fraud, which carries
a maximum possible penalty of five years' imprisonment.
Sebastian is due to appear in federal court Oct. 21. The
SEC's civil complaint, filed Sept. 25, alleges that
Sebastian violated

or aided and abetted violations of
numerous provisions of federal securities laws, the
statement noted. The SEC is seeking a permanent
injunction, disgorgement of all ill
-
gotten gains, a civil
penalty, and an order barring Sebastian from serving as
an off
icer or director of a public company.”

“Previously, the U.S. Attorney in Los Angeles and the
SEC charged three former L90 officers for their
involvement in the fraudulent barter transactions; all three
have pleaded guilty to criminal charges and have settl
ed
the SEC's civil charges.”

Lason Inc.

5/15/2003


bna.com

“According to the commission, defendants Gary L.
Monroe, William J. Rauwerdink, John R. Me
ssinger, and
Bassman, were the former chief executive officer, chief
operating officer, and controller, respectively, of Lason
Inc. During 1998 and 1999, Lason allegedly overstated
its earnings in order to meet or exceed Wall Street
expectations
--
culminati
ng in the third quarter of 1999,
when Lason's earnings were overstated by approximately
65 percent. According to the complaint, in a scheme
called "tailwind," Monroe and Rauwerdink instructed
companies acquired by Lason to delay recognizing
revenue until
after the acquisition was completed, and to
PwC

TICE

Technology

Improper
Revenue
Recognition










Sham related
party
transactions










pre
-
pay certain expenses before the acquisition. This
allegedly artificially increased Lason's earnings during the
first, third, and fourth quarters of 1998.”


“In other alleged misconduct, Monroe, Rauwerdink, an
d
Bassman improperly booked a forgiven loan as revenue
for Lason in the fourth quarter of 1998. Additionally, the
SEC charged, Lason improperly claimed an invalid
invoice as a legitimate receivable in the fourth quarter of
1998. When Lason's auditors quest
ioned the legitimacy
of the receivable, Monroe, Messinger, and Bassman
developed a scheme to obtain a check that improperly
appeared to make payment on the receivable.”


“In 1999, the SEC continued, Lason made numerous
fraudulent accounting entries, culmin
ating in fraudulent
Work in Process entries in the third quarter of the year
that artificially boosted Lason's earnings by 65 percent.


Lason declared bankruptcy in December 2001. It said
the defendants profited from the scheme through their
salaries, as
well as bonuses, stock options, and
executive loans that were affected by Lason's artificially
inflated stock price.”


“The SEC said it is asking the court to order permanent
injunctions, disgorgement plus prejudgment interest, civil
penalties, and officer
/director bars against the four
defendants... in the criminal action, a federal grand jury
indicted Monroe, Rauwerdink, and Messinger for
conspiracy to commit mail and wire fraud and to make
false statements to the SEC. Monroe and Rauwerdink
also were also

charged with making false statements to
the commission.”





Asset
Overstateme
nt








????





Financial
misconduct
by a member
of senior
management





F
ictitious
Receivables














Conflicts of
Interest

Lernout &
Hauspie
Speech
sec.gov
-
10/10/2002


“Between 1996 and 1999, Le
rnout & Hauspie improperly
recorded over $60 million in revenue from transactions
with two Belgian entities: Dictation Consortium, N.V. and
Klynveld Peat
Marwick
Goerdeler
TICE

Technology

Improper
Revenue
Recognition

Sham related
party
transactions,
Products
N.V




















































Brussels Translation Group N.V. These entities were
formed for the specific purpose of engaging in
transactions to a
llow Lernout & Hauspie to claim revenue
from its own research and development activities, which
otherwise would not have resulted in reported revenue
unless and until the projects resulted in marketed
products. Lernout & Hauspie subsequently acquired both
of these companies on terms that repaid the amounts
they had previously paid to Lernout & Hauspie, plus a
substantial profit. Because the transactions were, in
substance, disguised loans and not sales or service
transactions, Lernout & Hauspie should not h
ave
recognized revenue from those transactions under
Generally Accepted Accounting Principles.”


Language Development Companies



“By late 1998, the
revenue boost obtained by Lernout & Hauspie from the
Dictation and BTG transactions had waned. To bolster i
ts
reported revenue, Lernout & Hauspie launched a new
and elaborate fraudulent scheme to, in essence, create
additional customers. These new customers, dubbed
"Language Development Companies" (or "LDCs"),
enabled Lernout & Hauspie to claim revenue of $102
million in license fees and $8.5 million in prepaid royalties
in 1998 and 1999 combined, giving the false impression
of exponential growth. The LDC revenues were not
separately identified by Lernout & Hauspie in its financial
statements, but instead were b
uried in overall revenue
figures. Lernout & Hauspie, in its public disclosure,
contended that the LDCs were formed to develop speech
recognition and translation software applicable to various
regional languages. In actuality, the LDCs were little
more tha
n shell companies created, like Dictation and
BTG, as a means for Lernout & Hauspie to improperly
fabricate revenue. The LDCs had few, if any, employees,
and were dependent on Lernout & Hauspie personnel for
research and development activities. None of the

LDCs
Bedrijfsrevisor
en
































Recording
fictitious
transactions,
Side letters
with
customers
and others






































ever produced any significant product.”


Fraudulent Korean Transactions



“From September
1999 to June 2000, L&H reported approximately $175
million in sales revenue from its Korean operations ("L&H
Korea"). The purported dramatic growth in sales fro
m its
Korean subsidiary accompanied the inflation of the price
of L&H stock. The majority of this revenue was
fraudulent. L&H Korea engaged in "sales" subject to
written and oral side agreements that did not appear in
the L&H Korea contract files. These t
erms included, in
some instances, agreements by L&H Korea not to pursue
collection of license fees unless and until the "customer"
generated sufficient revenue from use of the L&H
software to cover those fees. To prevent uncollectible
receivables from rem
aining on L&H Korea's books,
thereby raising questions about the quality of the
company's reported earnings, a series of transactions
with four Korean banks were staged to give the
impression that the receivables had been factored to
those banks on a non
-
r
ecourse basis. In fact, L&H Korea
entered into side agreements with the banks requiring
L&H Korea to maintain blocked deposits to cover the
amounts of the "factored" receivables, which the banks
could apply to satisfy any collection shortfalls. Thus,
these

transactions were essentially fully secured loans
from the banks to L&H Korea, rather than sales of
receivables from L&H Korea to the banks. In another
scheme to disguise that its escalating accounts
receivable did not reflect genuine sales, L&H Korea
ar
ranged to have third parties "purchase" the licensing
agreements from the original customers. The transferees
would then obtain loans, collateralized by L&H Korea
assets but not reflected in L&H Korea's books, and use
the proceeds to pay L&H Korea through
the original
customers. By this means, L&H Korea was, in effect,
paying down its own receivables, while creating the



3/6/2003


bna.com




appearance of successfully collecting payments from
customers.”


The company settled with SEC when it “agreed without
admitting or denying
misconduct to be barred from future
securities law violations. Separately, it also consented to
the entry of an order revoking its common stock
registration.”

Logicon
Inc. &
Legato
Systems
Inc.

9/9/2003
-

bna.com

“The Securities and Exchange Commission Sept. 8
charged an exec
utive of Logicon Inc.
--
a former customer
of Legato Systems Inc. and now a division of Northrop
Grumman Inc.
--
with aiding and abetting Legato's financial
accounting fraud. Steckler, of Great Falls, Va., helped
former Legato sales executives improperly reco
rd
revenue on a sale to Logicon when Logicon was not
committed to pay for the product. “

“The SEC alleged that Steckler assisted two former
Legato sales executives in drafting a side letter in
connection with an order by Logicon to purchase Legato
software

for resale to the U.S. Air Force. The side letter
allegedly granted Logicon the right to cancel the
transaction, and noted that the cancellation provision
could not appear on the face of Logicon's purchase order
‘because of the impact on revenue recogniti
on.’ Unaware
of the side letter and the cancellation provision, the SEC
charged, Legato's finance department caused the
company to recognize revenue on the order. As a result
of this transaction, Legato's original Form 10
-
Q for the
Sept. 30, 1999, quarter

improperly overstated the
company's net income by approximately $2 million (146
percent), the agency said. Legato later restated this
income, and the transaction was ultimately canceled
following the discovery of the side letter.”

PwC
(Legato’s
auditor)

T
ICE

Technology

Improper
Revenue
Recognition

Side Letters
with
customers
and others

Lucent
Technologi
es




Plaintiffs accuse the company of improperly booking
hundreds of millions in sales revenue when it was
shipping fault
y products, "stuffing" distribution channels
PwC

TICE

Technology

Improper
Revenue
Recognition

Channel
Stuffing
,
Agreements













3/31/2003


bna.com

with unordered products and cutting side deals that
allowed distributors to return products. According to
plaintiffs, Lucent was losing optical networking sales
because it could not produce a satisfactory produ
ct and,
rather than acknowledge their internal problems, the
defendants made statements suggesting that no such
problem existed and sent out faulty shipments they knew
would be
returned.


Fiscal fourth quarter revenue was reduced by $679
million. The bulk

of that adjustment, $452 million, was for
equipment that it took back from distributors
.


Accounting fraud class action settlements



More than
$600 million will be repaid to investors as part of a
settlement reached March 27, 2003 with Lucent
Technologi
es Inc. in an accounting fraud class action
filed in the U.S. District Court for the District of New
Jersey that alleged Lucent misled investors who
purchased the company's stock during a certain time
period…Of the settlement, $500 million will go to the
p
laintiffs in the class action brought by Teamsters Locals
175 & 505 D & P Pension Trust Fund, a multiemployer
fund, and the Parnassus Fund and the Parnassus
Income Trust/Equity Income Fund.”

or Policies
that grant
liberal returns

McKesson
HBOC Inc.

6/5/2003


bna.com

Authorities allege that: “ The scheme included back
-
dating contracts, using side letters to condition sales, and
falsifying shipping documents while forcing employee
s to
falsify documents and filings to the SEC. The actions
artificially maintained HBOC's share prices in 1998 and
1999.”


“The indictment said McCall (former McKesson HBOC
chairman), Bergonzi, and Jay Lapine (former general
counsel) authorized improperly
recognizing more than
200 separate contracts. McKesson HBOC improperly
recognized $62 million in earnings for the fiscal year that
Deloitte &
Touche

CIPS

HealthCare

Improper
Revenue
Recognition

Side letters
with
customers
and others,
Backdating of
agreements

ended March 31, 1998, and more than $266 million for
the fiscal year that ended March 31, 1999.”


McCall and Lapine “were ind
icted on federal securities
fraud charges and three former executives have pleaded
guilty in a revenue recognition scheme.”


GUILTY PLEAS:

“Federal prosecutors and the SEC in September 2000
accused Bergonzi, Chief Financial Officer Jay Gilbertson,
and form
er Senior Vice President for Sales Dominick
DeRosa of stock fraud. Gilbertson pleaded guilty to one
conspiracy to commit securities fraud count and a single
count of making false statements in HBO & Co.'s third
quarter 1998 SEC Form 10
-
Q filing. Under th
e
agreement, Gilbertson paid $5 million restitution.
DeRosa in May 2000 pleaded guilty to one aiding and
abetting securities fraud count. As part of the SEC
settlement in 2000, he also consented to entry of a
permanent injunction, disgorged $361,529, and
paid a
$50,000 civil penalty.”

Medi
-
Hut
Co.

Sec.gov
-
8/19/2003















Medi
-
Hut Co.’s former Chief
Executive Officer, Joseph A.
Sanpietro, Chief Financial Officer, Laurence M. Simon,
and Vice President of Sales, Lawrence P. Marasco
“inflated Medi
-
Hut's revenues and earnings through
fictitious period
-
end invoices and other accounting
irregularities. Sanp
ietro and Simon also concealed from
the investing public the fact that Marasco secretly owned
and controlled one of Medi
-
Hut's largest customers
(which should have been recorded as related party
transactions). These accounting and disclosure violations
ena
bled Medi
-
Hut to tout "blockbuster" revenue growth
and created the appearance of profitability, when in fact
the company was operating at a loss. As a result, Medi
-
Hut's Form 10
-
K for the fiscal year ended October 31,
2001, and three Forms 10
-
Q for fiscal
year ended

CIPS

Retail &
Consumer

Improper
Revenue
Recognition

Recording
Fictitious
Transactions,
Sham related
party
transactions



8/21/2003


bna.com

October 31, 2002, were materially false and misleading.”

“Without admitting or denying the allegations, Sanpietro,
Simon, and Marasco agreed to be permanently enjoined
from violating certain federal securities laws and to be
barred from serving
as officers or directors of public
companies. Sanpietro also agreed to disgorge $185,000.
Medi
-
Hut
, meanwhile, consented to be enjoined from
future violations of certain securities laws. All four
defendants face a maximum of five years in prison and a
$2
50,000 fine on each count.”

“In the criminal case, according to U.S. Attorney
Christopher Christie, each defendant admitted to
conspiring to fraudulently
inflate Medi
-
Hut's

revenue and
earnings and concealing related
-
party transactions with
Larval, the fir
m's largest customer. Larval, Christie said,
was a New York company secretly owned by Marasco.
The fraud began when the defendants caused the
company to overstate revenue for fiscal year 2001 by
approximately $1.5 million
--
approximately 13 percent
--
and ea
rnings by $1.3 million. “

Merrill
Lynch

9/18/2003


bna.com

“Prosecutors contended that Enron and Merrill Lynch
engaged in a year
-
end 1
999 deal involving the "parking"
of Enron assets with Merrill Lynch. The arrangement
allegedly permitted Enron fraudulently to enhance its
reported year
-
end 1999 financial position, presenting a
misleading financial picture to public investors and
allowing

it to pay its executives unwarranted bonuses.
Bayly, Brown, and Furst allegedly knowingly participated
in the unlawful scheme, along with co
-
conspirators
Andrew S. Fastow, Enron's then
-
chief financial officer,
and Daniel Boyle, then
-
vice president of Glob
al Finance
at Enron.”

“According to the indictment, Enron "attempted
Ernst &
Young

GFS

Banking &
Capital
Markets



unsuccessfully in 1999 to sell an interest in electricity
-
generating power barges moored off the coast of Nigeria.
Enron, through Fastow, Boyle and others, then arranged
for Merrill Lyn
ch to serve as a temporary buyer so that
Enron could record earnings and cash flow in 1999,
making Enron appear more profitable than it was. Merrill
Lynch's purchase of the Nigerian barges allowed Enron
to improperly record $12 million in earnings and $28
million in funds flow in the fourth quarter of 1999,"
prosecutors contended.”

“They said Enron promised Merrill Lynch that it would
receive a return of its investment, plus an agreed
-
upon
profit, within six months. Allegedly, the oral agreement
‘was not
disclosed in the written contract used by Enron's
internal and external accountants to determine the
accounting treatment of the deal.’”

“‘Specifically,’ the release stated, ‘Enron promised in an
oral 'handshake' side deal that Merrill Lynch would
receive
a rate of return of approximately 22 percent, and
that Enron would sell the barges to a third party or
repurchase the barges within six months. That
agreement meant that Merrill Lynch's supposed equity
investment in the barges was not truly 'at risk' and d
id not
qualify as a sale from which earnings and cash flow could
be recorded.’”

“In the release, prosecutors stated that all three
defendants” (Daniel Bayly, of Darien, Conn., the former
head in Merrill Lynch's Global Investment Banking
division; James A.
Brown, also of Darien, and head of
Merrill Lynch's Strategic Asset Lease and Finance group;
and Robert S. Furst, of Dallas, the "Enron relationship
manager" for Merrill Lynch in the investment banking
division) “were charged with conspiracy to commit wire
fraud and to falsify books and records.”

“Merrill Lynch agreed to pay $80 million to settle SEC
civil injunctive charges based on its alleged role in the
Nigerian barge
-
deal controversy.”

Microstrate
gy















Sec.gov
-
12/14/2000









8/11/2003


Rueter’s
News

Improperly recognized revenue from sales of software as
agreements were entered into rather than as services
were provided. SEC also alleged that additional
accounting errors included the timing

of contracts,
valuing future obligations, and revenue recognition for
barter transactions. In at least three instances,
MicroStrategy recognized revenue on transactions that
were not completed or signed by either party prior to the
close of the quarter. I
n a separate transaction,
MicroStrategy improperly recognized revenue for a
license to unspecified future products and failed to
recognize a deal as a barter transaction yielding no
revenue.


“The company's restatement reduced revenues over the
three
-
year
period by approximately $66 million of the
$365 million reported. Approximately $54 million, or 80%,
of these restated revenues were in 1999. Without
admitting or denying the charges, the former CEO, COO,
and CFO agreed to disgorge a total of approximately

$10
million (Saylor


$8,280,000, Bansal


$1,630,000, and
Lynch


$138,000) and consent to fraud injunctions, and
to each pay $350,000 in penalties.”


“U.S. regulators barred the PricewaterhouseCoopers
partner who led the audit of MicroStrategy Inc. from

auditing public companies for at least two years.”

PwC

TICE

Technology

Improper
Revenue
Recognition

Early delivery
of product

Microtune
Inc.

7/24/2003

Market
News
Publishing

Independent investigation “findings concluded that from
April 2001 through 2002
, Microtune engaged in four
revenue recognition practices in violation of GAAP,
namely:

1.

Shipments of product to customers at the end of
Ernst &
Young


TICE

Technology

Improper
Revenue
Recognition,
Asset
Overstateme
Early delivery
of product,
Inadequate
reserve
s,
Agreements
quarters in excess of orders received at the time
of shipment, including the shipment of unfinished
product. The revenue

was recognized even
though there was no purchase order for the
product shipped.

2.

Extended payment terms, including "flexible
payment terms," granted to customers, including
customers who were delinquent in their
obligations to Microtune. The revenue was
re
cognized despite the accounts receivable
being questionable, and reserves were not
established.

3.

"Price protection" arrangements granted to
distributors whereby (a) profits were guaranteed
and (b) credits were promised if the product was
resold for less tha
n what Microtune was to be
paid. While "price protection" arrangements are
not improper, the revenue was recognized when
it should not have been under GAAP.

4.

Rights of return, or extraordinary stock rotation
privileges, granted to distributors. These includ
ed
the right to return any product not sold. Despite
those rights of return, the revenue was
recognized at the time of shipment.”

nt

or policies
that grant
liberal return,
exchange or
refund policy

Network
Associates
Inc.

6/20/2003


bna.com

Multi
-
part scheme to artificially inflate the revenue
generated from the sale of its products to distributors.
“According to the SE
C, the scheme took place from the
second quarter of fiscal 1998 through the fourth quarter
of fiscal 2000. The scheme included:

-

paying distributors so that they would hold
excess inventory and buy more products;

-

giving deep discounts to distributors on am
ounts
that they owed to Network Associattes;

-

fraudulently manipulating reserve accounts to,
among other things, cover payments and
discounts provided to distributors;

-

selling to distributors on consignment in violation
PwC

TICE

Technology

Improper
Revenue
Recognition

Channel
Stuffing,
Sham related
party
transactions

of Network Associates' written sales
contracts
and purported revenue recognition practices; and

-

using a wholly
-
owned subsidiary to buy products
previously sold to distributors to reduce
distributor inventory levels and limit product
returns.”


“Terry W. Davis pleaded guilty June 11 to securit
ies fraud
over his alleged role in a scheme to inflate his company's
stock price by overstating revenue and earnings. Davis
admitted that he and others caused Network Associates
to file materially misleading financial statements; that he
lied to the compan
y's outside auditors; and that he took
other steps to conceal his misconduct. Davis also
pleaded guilty to selling Network Associates stock while
in possession of inside information that the company's
financial statements were false and misleading.”



“In
April 2002, Network Associates announced that it
would restate its earnings and revenue for 1998
-
2000.”


“The commission added that its investigation into the
matter is continuing. Meanwhile, in the criminal case,
Davis faces a prison term of up to 10 ye
ars and $250,000
fine, plus restitution up to the amount of the loss caused
by his misconduct, including insider trading proceeds of
$1.4 million.”

New
Engl
and
Financial

8/12/2003


The
Boston
Globe

MetLife Inc. said it uncovered accounting irregularities on
the books of its Boston subsidiary. “The auditors
determined that unspecified overhead expenses paid to
independent agents who sold New England Financi
al
policies had been improperly spread out over a 30
-
year
schedule, instead of being accounted for as they were
incurred. As a result expenses were under reported and
earnings were inflated between 1998 and 2003.”


Deloitte &
Touche

CIPS

Insurance

Liabil
ity
Understatem
ent


NVIDIA
Corp

9/12/2003


bna.com

“The former chief financial officer of Silicon Valley high
-
tech company NVIDIA Corp. agreed Sept. 11 to pay
KPMG

TICE

Technology

Liability
Understatem

$671,695 to settle Securities and Exchange Commission
charges of financial fraud.”

“The SEC cha
rged Christine Hoberg with financial
reporting fraud for recording $3.3 million in cost savings
on a transaction with a supplier in the quarter that ended
April 30, 2000. In reality, Hoberg agreed to repay the
supplier through artificially higher prices on

future
purchases, the complaint said. In doing so, Hoberg
caused NVIDIA to violate generally accepted accounting
principles and materially overstate its gross profit by 6.4
percent and net income by 15.3 percent for the quarter,
the SEC alleged.”

“Hobe
rg agreed to pay $596,695 in ill
-
gotten gains and
prejudgment interest and $75,000 in penalties and
agreed to not serve as an officer or director of any public
company for five years, SEC said in a statement.”

“NVIDIA in April 2002 announced it was restati
ng
financials for the 2000 and 2001 fiscal years and the first
three quarters of fiscal 2002.”

ent

Peregrine
Systems

7/2/2003


bna.com

“Through the alleged fraudulent scheme, the SEC said…
Peregrine inflated its

revenue and stock price. To do so,
Peregrine allegedly filed materially incorrect financial
statements with the commission concerning the quarter
ended June 30, 1999, through the quarter ended Dec.
31, 2001.”


“In a financial restatement earlier this year
, Peregrine
reduced previously reported revenue of $1.34 billion by
$509 million. At least $259 million of that reduction was
required because the underlying transactions lacked
substance”


“Without admitting or denying the SEC's allegations,
Arthur
Anderson

TICE

Technology

Improper
Revenue
Recognition













Peregrine agr
eed to be enjoined from violating the
antifraud, reporting, books and records, and internal
controls provisions of the federal securities laws. It also
agreed to disclose the current condition of its internal
controls and financial reporting procedure when

it
implements its bankruptcy reorganization plan.”


“The SEC charged that Peregrine improperly booked
millions of dollars of revenue for non
-
binding sales of
Peregrine software to resellers. The resellers were not
obligated to pay Peregrine in the arrange
ment, called
"parking" the transaction, the SEC said. According to the
complaint, Peregrine personnel parked transactions to
achieve sales forecasts.”


“Peregrine also allegedly entered into reciprocal
transactions in which it essentially paid for its cust
omers'
purchases of Peregrine software. Further, Peregrine, the
commission charged, routinely kept its books open after
fiscal quarters ended, and improperly recorded software
transactions as revenue for the prior quarter.”


“When Peregrine booked revenue
for the non
-
binding
reseller contracts, and the customers predictably did not
pay, receivables
--
some of them bogus
--
ballooned on
Peregrine's balance sheet. To make it appear to
investors that Peregrine was collecting its receivables
more quickly than it wa
s, the SEC said, a senior officer
entered into financing arrangements with banks to
exchange receivables for cash. Peregrine allegedly
improperly accounted for these financing arrangements
as sales of the receivables, rather than as loans, and
removed them

from the company's balance sheet. Some
of the "sold" receivables were invalid, with no underlying
obligation, or fake, according to the commission.”


“The SEC charged that, as part of the cover up,

























Peregrine personnel improperly wrote off millions of
doll
ars in uncollectible
--
primarily sham
--
receivables, to
acquisition
-
related accounts in Peregrine's financial
statements and books and records.”

Pro
-
After
Inc
(formerly
known as
PurchasePr
o.com)

9/24/2003


bna.com

“Allegedly, Anderson and his co
-
conspirators, including
other senior PurchasePro officials and an employee of a
major U.S.
-
based media company, conspired falsely to
inflate the revenue recognized by P
urchasePro from the
sale of PurchasePro marketplace licenses. ‘A substantial
amount of the reported revenue was earned from
marketplace license sales improperly recognized as
revenue because Anderson and his co
-
conspirators had
achieved the sales as a resu
lt of side agreements with
the purchasers that had been kept secret from
PurchasePro's outside auditors and the investing public,’
prosecutors added.”

“They contended that in furtherance of the conspiracy,
PurchasePro had a warrant agreement with the media

company
--
America Online Inc., according to the SEC's
complaint
--
that allowed the media company to ‘earn’ a
total of $30 million worth of PurchasePro warrants. ‘In
exchange for the $30 million worth of warrants, at least
half of which were earned when Purc
hasePro provided to
the media company false credits for referrals, the media
company agreed to reward PurchasePro with revenue in
future quarters,’ the Justice Department contended. It
said that an employee of the media company and others
then entered int
o secret side agreements with the media
company's partners and suppliers, resulting in their
purchase of marketplace licenses in the first quarter of
2001, in an effort to help PurchasePro meet its revenue
objectives.”

Anderson (former senior vice presiden
t of sales and
strategic development) could receive up to five years in
prison and a fine of almost $250,000. “He agreed to pay
Arthur
Anderson

TICE

Technology

Improper
Revenue
Recognition


full restitution to the victims of his offense.” Miller (former
controller and senior vice president of finance) could
receive
a prison term up to 20 years and a fine of almost
$250,000. “Meanwhile, the SEC noted, Anderson and
Miller settled the civil charges without admitting or
denying misconduct. They agreed to be enjoined from
future securities law violations and to be barred

from
serving as an officer or director of a public company.
Also, each man agreed to disgorge $100,000 in bonuses
he received during the period in question, plus
prejudgment interest. However, payment was waived
because of their financial condition, accor
ding to the
commission.”

Qwest
Communic
ations








Sec.gov
-

2/25/2003

Inflated the company's revenues by approximately $144
million in 2000 and 2001 in order to meet earnings
projections and

revenue expectations by artificially
accelerating Qwest's recognition of revenue in two
equipment sale transactions for its Global Business
Markets unit.

AFSB Transaction


“Joel Arnold, the former senior vice president of Global
Business; Grant Graham, t
he former chief financial officer
of Global Business; Thomas W. Hall, the former senior
vice president of a division of Global Business; Bryan K.
Treadway, the former assistant controller of Qwest; John
M. Walker, the former vice president of sales for a
d
ivision of Global Business; and Douglas K. Hutchins, a
former director of Global Business planned and carried
out an elaborate scheme to inflate revenues in
connection with the sale of Internet equipment and
service to the Arizona School Facilities Board (
ASFB).
The scheme involved artificially separating the equipment
sale from the installation services and wrongfully
characterizing the sale as a bill
-
and
-
hold transaction
under generally accepted accounting principles. It also
included accelerated deliver
y of equipment necessary for
Arthur
Anderson

TICE

InfoComm

Improper
Revenue
Recognition


the two
-
year project and delivery of equipment that was
not approved for the ASFB project. To support immediate
recognition of revenue for sale of the equipment, the
defendants prepared and furnished to their auditors false
let
ter agreements for ASFB and a fraudulent internal
memorandum. As a result of the fraudulent transaction,
Qwest recognized approximately $33.6 million in revenue
in the quarter ended June 30, 2001. Without the fictitious
revenue from the ASFB transaction,
Qwest would have
fallen short of its projected 12 to 13 percent revenue
growth for the quarter.”


Genuity Transaction


“Richard L. Weston, the former senior vice president in
Product Development for Qwest's Internet Solutions unit,
and William L. Eveleth,

the current CFO of Qwest's
Corporate Planning and Operational Finance unit and
senior vice president of Finance, along with Arnold and
Graham, participated in a scheme in which Qwest
artificially characterized one transaction with Genuity Inc.,
an Interne
t service provider, as two separate contracts.
In the first contract, Qwest purported to sell equipment to
Genuity at an improperly inflated price. In a second
contract, Qwest agreed to provide services to Genuity at
a loss to Qwest, and reassumed all ris
k of loss and
obsolescence on the equipment purportedly sold
pursuant to the first contract. As a result of the fraudulent
transaction, Qwest improperly recognized $100 million in
revenue and claimed $80 million in earnings before
interest, taxes, depreci
ation, and amortization (EBITDA)
in the quarter ended Sept. 30, 2000. Without the fictitious
revenue from the Genuity transaction, Qwest would not
have achieved the projected double
-
digit growth for the
quarter, and would have recognized growth of 9.8
perc
ent above the same quarter of the prior year rather
than the announced 12.4 percent. Qwest also improperly
recognized revenue of approximately $2.6 million in the
quarter ended Sept. 30, 2000, and an additional $8
million in the year ended Dec. 31, 2000,
under the
service agreement despite the fact that Qwest had not
begun providing any services.”


“The Commission's complaint seeks an order against all
defendants enjoining them from violations of the
antifraud, reporting, books
-
and
-
records, and internal
co
ntrols provisions of the federal securities laws;
imposing civil money penalties; and ordering
disgorgement of all ill
-
gotten gains, including salaries,
bonuses, stock and other compensation made during
their fraudulent activities. The Commission further
seeks
orders against Arnold, Graham, Hall, Treadway and
Weston permanently barring them from acting as a
director or officer of a publicly held company.”

Reliant
Resources
Inc. and
Reliant
Energy

Inc.

5/14/2003


bna.com

“Reliant Resources Inc. and Reliant Energy Inc. settled
Securities and Exchange Commission charges May 12
that they participated in 17 same
-
day "round
-
trip" trades
that the commission said were designed to increase
volume and impr
ove the companies' industry rankings.”


“The consent order stated that from 1999 to 2001, the
respondents engaged in "significant" same
-
day
commodity transactions involving simultaneous, pre
-
arranged purchases and sales with the same counter
-
party for the

same volume and same price. Those round
-
trip trades, the SEC said, accounted for 26 percent, 14.5
percent, and 19.5 percent of the companies' total
reported megawatt hours of power volume for the years
in question, respectively.”


“In May 2002, the respon
dents restated revenues for the
three years in question to reflect net value of the round
-
trip trades instead of gross value, the SEC said. The
revenue removed as a result of the restatement
accounted for 17.7 percent, 5.3 percent, and 10.6
Deloitte &
T
ouche

CIPS

Energy,
Utilities &
Mining

Improper
Revenue
Recognition


percent of prev
iously reported revenue for 1999, 2000,
and 2001, respectively.”


“The consent order also said the firms participated in
transactions designed to shift earnings forward to years
when energy prices were expected to be decreasing and
also misrepresented the
structure of the transactions in
order to utilize favorable accounting treatments.”


“Reliant Resources restated the transactions and, as a
result, recognized approximately $134 million in 2001
earnings that it previously had expected to recognize in
2002
and 2003.”


“In settling with the commission, the respondents
--
without
admitting or denying the charges
--
agreed to cease and
desist from violations of the antifraud, issuer reporting,
and recordkeeping requirements of federal securities
laws.”

Rent
-
Way
Inc.

7/23/2003

bna.com

“SEC said the defendants
--
Rent
-
Way Inc.; Jeffrey
Conway, a former Rent
-
Way director who also served at
various times as chief financial officer, president

and
chief operating officer; and the firm's former controller
and chief accounting officer, Matthew Marini; and Jeffrey
Underwood, a former Rent
-
Way senior vice president in
charge of operations
--
caused the company to under
-
report expenses by approximatel
y $60 million during the
relevant time. “


“Specifically, the commission said Conway set periodic
earnings forecasts and directed Marini to meet them. In
doing so, the SEC said, he ordered Marini not to tell him
how the forecasts were being met in an attem
pt to
maintain "plausible deniability" should the scheme be
uncovered. Marini then directed lower level employees to
make fraudulent entries to
Rent
-
Way's
books and
records, the SEC said. Conway, meanwhile, directed
PwC

CIPS

Retail &
Consumer

Liability
Understatem
ent


Underwood to defer the recording of cer
tain operating
expenses at the end of fiscal 1999 and fiscal 2000. The
effect of the order was to inflate the firm's financial
results, the SEC said. When the scheme began to
unravel in 2000, the commission said, Conway and
Marini took steps to conceal the
ir behavior from auditors
and other officers of the company.”


“In settling the civil action, the SEC said,
Rent
-
Way
,
Conway, and Marini agreed to be permanently enjoined
from violating certain securities laws, and that Conway
and Marini agreed to be barre
d from serving as officers
or directors of public companies.”


“Conway further agreed to pay $159,000 in disgorgement
and interest as well as a $200,000 fine, while a civil
penalty against Marini has been left open to a later
determination. Underwood, mea
nwhile, agreed to be
permanently enjoined from violating books and records
provisions of federal securities laws and to be fined
$25,000. As part of the settlement, which still must be
cleared with the court, none of the defendants admitted
or denied the c
harges.”

Rite
-
Aid
Corp.

Sec.gov
6/21/2002













“Rite Aid's forme
r senior management team engaged in a
financial fraud that materially overstated the Company's
net income for the fiscal years ("FY") 1998, 1999, the
intervening quarters and the first quarter of FY 2000. In
addition, the former senior management failed t
o disclose
material information, including related party transactions,
in Proxy and Registration Statements, as well as a Form
8
-
K filed in February 1999. Initially in July 2000 and later
in October 2000, Rite Aid restated reported cumulative
pre
-
tax incom
e by a total of $2.3 billion and cumulative
net income by $1.6 billion. Rite Aid's massive
restatement was, and to this day is, the largest financial
restatement of income by a public company. “


KPMG

CIPS

Retail &
Consumer

Improper
Revenue
Recognition













6/17/2003


The
Washingto
n Post












6/18/2003


bna.com




10/13/2003


Associated
Press
Newswires






6/6/2003


bna.com

Former Rite Aid Corp. chief executive Martin L. Grass
“had b
een accused of masterminding a plan to inflate
Rite Aid's earnings from 1996 to 1999. Grass had been
charged with securities fraud, wire fraud and making
false statements to the Securities and Exchange
Commission, in connection with a complex scheme to
ad
d hundreds of millions of dollars to Rite Aid's earnings
by improperly classifying the costs of closing old
drugstores and manipulating credits from suppliers
--

sometimes defrauding the suppliers themselves by
falsely claiming merchandise was damaged or o
utdated.
Grass also was charged with obstructing justice for
allegedly arranging and covering up contracts that
awarded their associates millions of dollars.”


“Grass agreed to plead guilty to conspiracy to defraud
and conspiring to obstruct justice, and

to pay a $500,000
fine and forfeit $3 million…” and “serve a 96
-
month
prison term.”


“Rite Aid's former chief financial officer, Franklyn M.
Bergonzi, admitted to conspiring to cook the books. He
could be sent to prison for five years and fined
$250,000.



Brown (Rite Aid's former chief counsel and vice
chairman) “faces 11 federal criminal charges for what
prosecutors say was a conspiracy to artificially inflate the
company's value and then mislead investigators.”


“The U.S. District Court for the Eastern

District of
Pennsylvania June 2 approved the settlement of a class
action in which KPMG LLP agreed to pay $125 million to
shareholders of its former audit client, Rite Aid Corp. “






Co
sts and
Expenses
Avoided by
Fraud


Royal
Ahold NV

7/1/2003


Reuters
News

“The Company … said its investigations have uncovered
a total of 970 million euros ($1.123 billion) in accounting
problems. “

Deloitte &
Touche

CIPS

Retail and
Consumer

Improper
Revenue
Recognition













2/27/2003


bna.com


“U.S. Foodservice's

profits were inflated by irregular
accounting for vendor allowances, the promotional
discounts commonly offered by suppliers to retailers and
food service companies.”


Ahold revealed ithat earnings overstatements due to
wrongful accounting of vendor rebat
es at its U.S.
Foodservice unit are $880 million over the past three
years.


“Ahold,
… also confirmed it faces civil litigation in U.S.
courts linked to a share price meltdown triggered by its
Feb. 24 announcement that it overstated earnings for
fiscal y
ears 2001 and 2002 by at least $500 million.”

SembCorp
Logistics
Ltd.

7/28/2003


Dow
Jones
Internation
al News

“SembCorp Logistics said… employees at its Indian unit
created fictiti
ous revenue and expenses from 2000 to
2002, resulting in total profit overstatement of 388 million
rupees, or S$15.5 million (US$1=S$1.7495) over the two
years. In addition, earnings in the first quarter ended
March 31 were overstated by S$1.3 million, it
said.” "’It
was found that certain individuals in the finance
department of SembCorp India artificially inflated revenue
and expense figures through the creation of fictitious
documents, invoices and journal entries,’ SembCorp
Logistics said.”

KPMG

CIPS

T
ransportat
ion and
Logistics

Improper
Revenue
Recognition


Spiegel Inc.

9/15/2003


Wall
Street
Journal

“…SEC filed a partially settled securities
-
fraud complaint
against Spiegel in a Chicago federal district court. Terms
of the settlement included the cou
rt's appointment of Mr.
Crimmins, a partner at the Washington law firm Pepper
Hamilton LLP, to review Spiegel's accounting
irregularities and financial condition.“


“The SEC's civil complaint charged Spiegel with
fraudulently withholding public disclosure

of the
company's 2001 annual report, as well as subsequent
quarterly reports, to hide that KPMG had rendered an
KPMG

CIPS

Retail and
Consumer

???


opinion in early 2002 expressing the accounting firm's
substantial doubt about Spiegel's ability to remain in
business as a going concern.”


Ex
aminer’s report claims “numerous accounting
violations at Spiegel, which hit the skids after it began
issuing easy credit to unqualified customers as a way to
boost revenue. The report also criticizes KPMG's auditing
practices. But the reports harshest cri
ticism of KPMG
comes for what he says was the auditing firm's failure to
notify the SEC, as required by federal statute, about
apparent illegal acts by the company, namely Spiegel's
refusal to disclose KPMG's own going
-
concern opinion.
‘KPMG stood by...did

not make a report to Spiegel's
board, did not resign and did not report the matter to the
SEC,’ the report says.”

Sport
-
Haley
Inc.

11/3/2003


bna.com

"The commission's amended complaint
--
originally filed
Sept. 26 again
st Sport
-
Haley, its chairman of the board,
and its former controller
--
charged that Sport
-
Haley
materially overstated WIP inventory in its financial
statements during its 1998 and 1999 fiscal years.
"


"According to the SEC, Sport
-
Haley filed with the SEC
m
aterially incorrect financial statements that overstated
the company's 1998 fiscal year income by $1.5 million or
41 percent and its 1999 fiscal year income by $311,000
or 22 percent. In the amended complaint, the agency
said that Lecrone" (former auditor
of Sport
-
Haley Inc.)
"knew or was reckless in not knowing that LHM failed to
perform sufficient audit procedures on the company's
1998 and 1999 WIP inventory accounts.
"


"
LeCrone, the SEC alleged, agreed with Sport
-
Haley
management to a solution to adjust
the overstated WIP
inventory account that minimized the impact on the
company's gross margin, kept the 1998 financial
Levine,
Hughes, &
Mithuen Inc.

CIPS

Retail &
Consumer

Asset
Overstateme
nt


statements intact, and ratably eliminated $1.2 million of
overstated WIP inventory during the company's 2000
fiscal year.
"


"
According to

the commission, Sport
-
Haley failed to
disclose the WIP inventory overstatement or the
company's measures to adjust the financial statements
for the overstatement. LeCrone also allegedly recklessly
allowed Sport
-
Haley improperly to capitalize period costs
in financial statements filed with the SEC during its 1998
and 1999 fiscal years.
"


"
LeCrone, according to the SEC, knowingly or recklessly
allowed the company to materially misstate losses on the
sale of headwear equipment in Sport
-
Haley's 1999 year
-
end
financial statements. LeCrone allegedly knew or was
reckless in not knowing that Sport
-
Haley's financial
statements were materially false or misleading, that they
did not comply with generally accepted accounting
principles, and that the audits were not pe
rformed in
accordance with generally accepted auditing standards.

"


"
The SEC sought an antifraud injunction against LeCrone
and the imposition of civil money penalties.
"

SRI/Surgi
c
al Express,
Inc.

Sec.gov
-
8/5/2003












SRI, a hospital supply company, overstated revenue by
4.9% and net income by at least 17.5% in its third quarter
2001 report. The overstatement resulted from the
premature recognition

of customer orders and the
recognition of two transactions with hospital customers,
which were improperly recorded as sales
. “



On November 27, 2001, SRI restated its third quarter
Form 10
-
Q to reverse the prematurely recognized
customer orders and to u
ndo the transactions that were
mischaracterized as sales. SRI's COO Wayne Peterson
failed to properly oversee the second and third quarter
Ernst &
Young

CIPS

Healthcare


Improper

Revenue
Recognition








8/6/2003


bna.com

sales pushes, which resulted in the premature
recognition of customer orders. SRI's CFO James
Boosales failed to devi
se and maintain sufficient internal
accounting controls to prevent the early recognition of
orders.



“According to the commission,” Alexander H. Edwards III,
the former president of SRI/Surgical Express Inc.
“caused SRI to enter into two transactions that

resulted in
SRI's overstating its fiscal 2001 third
-
quarter revenues by
$832,000

‘even though neither of the counter parties
ever agreed to accept delivery of, or pay for, additional
products in SRI's third quarter.’ In resolving the charges,
Edwards agr
eed to be barred from future securities law
violations and to pay a $50,000 civil penalty, the SEC
said.”


SRI, its former COO Wayne R. Peterson, and its former
CFO James T. Boosales

agreed to SEC
cease and
desists.

Symbol
Technologi
es

sec.gov
-
6/19/2003
















“From 1998 through 2002, defendant Korkuc engaged in
a fraudulent scheme that in
flated the reported financial
results. Korkuc and others rigged the results that Symbol
reported in press releases and periodic reports filed with
the Commission by manipulating millions of dollars in
revenue, net income and other measures of financial
pe
rformance while Korkuc was Director of Corporate
Accounting and then Chief Accounting Officer. “



“Among other fraudulent accounting practices, Korkuc
and others manipulated reserves and made other
improper adjustments to Symbol's raw financial data to
co
nform the reported results to market expectations.”

-

Topside Adjustments and Cookie Jar Reserves



“Korkuc played a central role in Symbol's
fraudulent use of topside adjustments and
excess "cookie jar" reserves to manipulate
Deloitte &
Touche

TICE

Technology











Improper
Revenue
Recognition











































financial results to match proj
ections. One of the
consolidated financial reports that Korkuc
prepared for senior management each quarter
was known within Symbol as a "Tango sheet." In
the Tango sheets, Korkuc not only consolidated
the raw results, but he also compared those
results to

the forecast that management had
provided to the board of directors and identified
adjustments that would conform the raw numbers
to the forecast, which reflected market
expectations. Members of senior management
authorized those adjustments and, in some
cases, directed Korkuc to make other, more
advantageous adjustments without regard to
GAAP or other financial reporting requirements.”
“During 2001, a Symbol officer and other
employees created an excessive reserve of $10
million for obsolete inventory in

a gross inventory
account maintained on the books of Symbol's
operations division. This $10 million cushion was
a "cookie jar" reserve designed for use when the
operations division failed to meet its quarterly
forecast, and it exceeded any reasonable
esti
mate of Symbol's exposure for obsolete
inventory. In the Tango sheet process for the
fourth quarter of 2001, members of senior
management authorized Korkuc to release the
excess $10 million into earnings in the fourth
quarter of 2001. By making this and ot
her
adjustments that quarter, Symbol reported net
income of $13.4 million rather than a $2.4 million
loss, and hit the quarterly forecast right on the
nose. The reversal of this "cookie jar" inventory
reserve and the favorable impact on reported
earnings w
ere not disclosed to the public.”

-

Recognizing Revenue before Product is Shipped

Korkuc was also involved in Symbol's fraudulent





























Improper
Revenue
Recognition



Improper
Revenue
Recognition






































practice of recognizing revenue on purchase
orders that were processed in one quarter but
not shipped until the following quart
er.”

-

Three
-
Way Channel Stuffing Transactions




To
help meet senior management's revenue targets,
Symbol employees also engineered fraudulent
"channel stuffing" transactions with resellers,
including what were known as "candy" deals. In
these three
-
way tra
nsactions, Symbol paid off
resellers to "purchase" large volumes of Symbol
product from another distributor at the end of a
quarter so that Symbol could then induce that
distributor to place new orders to meet this
illusory demand.”

-

Manipulation of Receiva
bles to Hide the Effects
of Channel Stuffing



Korkuc and others
engineered the DSO reduction by artificially
reducing the amount of outstanding accounts
receivable, principally through the undisclosed
reclassification of trade receivables from channel
pa
rtners into notes receivable. At a series of
meetings in June 2001, management decided to
reduce the DSO figure by requiring channel
partners with large outstanding receivables to
sign notes for those amounts. After sales
personnel and others secured the n
otes, Korkuc
made or directed a reclassification entry to the
general ledger converting over $30 million of
trade receivables into notes receivable, which
are not included in the DSO calculation. Korkuc
knew that the purpose of the reclassification was
to
manipulate Symbol's DSO figure.”


The Company is currently in the process of restating its
financials.
According to an April 2003 press release,
Symbol's planned restatement will cover 1998 through
2002.








????




6/27/2003


bna.com






“In its complaint, the SEC is seeking a permanent

injunction against Korkuc from violating certain federal
securities laws, a fine, and a bar against acting as an
officer or director in a public company.” The SEC is also
charging “Robert Asti, a former sales executive at
Symbol, alleging he committed se
curities fraud and other
violations.”

Take
-
Two
Interactive

7/21/2003


The

Wall
Street
Journal

Company “restated seven quarters of financial results,
following an internal investigation of accounting
irregularities.” Take
-
Two eliminated about $15.4 million
of net sales in fiscal 2000 it had made to independent
third
-
party distr
ibutors and $8.7 million in related cost of
sales, which were improperly recognized as revenue and
later returned or repurchased by the company.


Take
-
Two's restatement reduces previously reported
fiscal 2000 revenue by $23 million, to $364 million, and
cu
ts net income for the year ended Oct. 31, 2000, by
$18.6 million, to $6.4 million.

PwC

TICE

Technology

Improper
Revenue
Recognition


Waste
Manageme
nt Inc.

10/23/2003


bna.com



Two former Waste Management Inc. officials Oct. 22
settled charges in the U.S
. District Court for the Southern
District of Texas that they made misleading statements
about the company's financial position
--
and sold WMI
stock knowing that its market price was inflated by the
alleged fraudulent statements.”


” [D]efendants Rodney R.
Proto and Earl E. DeFrates
agreed without admitting or denying misconduct to be
barred from future securities law violations. They also
agreed to pay a total of $4.2 million in disgorgement,
prejudgment interest, and civil penalties, and to be barred
for f
ive years from serving as officers or directors of a
public company.”


” WMI's former chief accounting officer, Bruce E. Snyder
Jr., also faces SEC charges over his alleged role in the
Arthur
Anderson

CIPS

Services
-

Healthcare

Financial
Fraud by
Senior
Management


controversy. “ He “was charged with insider trading in
WMI stock and pr
eparing, reviewing, and signing a
materially false or misleading Form 10
-
Q for the first
quarter of WMI's fiscal year ended Dec. 31, 1999.”


“[O]n July 6, 1999, WMI issued a news release warning
that it had substantially lowered its earnings expectations
f
or the second quarter of 1999 due to a $250 million
shortfall in revenues.”


“In June 2001, without admitting or denying wrongdoing,
WMI settled SEC administrative charges it made
materially false and misleading forecasts of its second
quarter 1999 earning
s.”


Past Problems: “[I]n early 2002, the SEC sued the
founder of the company and five other former top officers
in the U.S. District Court for the Northern District of
Illinois, charging them with perpetrating a massive
financial fraud. In that suit, the
commission alleged that
the defendants engaged in a systematic scheme to falsify
and misrepresent WMI's financial results between 1992
and 1997. In 1998, the company restated its financial
statements for 1992 through the third quarter of 1997,
acknowledgin
g that it misstated its pre
-
tax earnings by
about $1.7 billion.”

Whitehall
Jewellers
Inc.

Crain's
Chicago
daily
update

“The lawsuit, filed Aug. 16 by Capital Factors Inc., a
lleges
Cosmopolitan Gem Corp., jewelry wholesaler, convinced
Capital Factors to loan it millions of dollars by
misrepresenting its accounts receivables

with the help
of Whitehall and 13 other retail defendants. Capital
Factors provided financing to Cosmop
olitan based on
accounts receivable information from its retail customers.
The retailers are responsible for repaying Capital Factors
directly for the merchandise they ordered from
Cosmopolitan.”


PwC

CIPS

Retail &
Consumer



“Whitehall and other retailers allegedly provided
misleadi
ng accounts receiveable documents

including
the true prices for merchandise bought

to back up
Cosmopolitan's claims it was more profitable than it really
was, so it could get the financing from Capital Factors.
The retailers also allegedly made payments di
rectly to
Cosmopolitan rather than to Capital Factors, as required.
The plaintiff alleges Whitehall, along with jewelry retailers
Georgia
-
based Friedman's Inc. and California
-
based
Crescent Jewelers, conspired to pull off the elaborate
scheme in exchange
for excessive discounts and credits
from Cosmopolitan.”


“The Securities and Exchange Commission (SEC)
opened an informal inquiry into the allegations shortly
after the complaint was filed in the U.S. District Court for
the Southern District of New York.”


“Capital Factors, a subsidiary of Tennessee
-
based Union
Planters Corp., is seeking damages of $30 million and
unspecified punitive damages against all the defendants.”

WorldCom

5/20/2003


bna.com

The Company intentionally an
d improperly capitalized
billions of dollars of expenses as capital expenditures.
WorldCom misled investors by overstating its income
from as early as 1999 through the first quarter of 2002,
caused by undisclosed and improper accounting.
WorldCom has ack
nowledged that it materially
overstated the income it reported on its financial
statements by approximately $9 billion.


WorldCom engaged in an improper accounting scheme
intended to manipulate its earnings to keep them in line
with Wall Street's expectati
ons and to support it’s stock
price. One of WorldCom's major operating expenses
was its "line costs." "Line costs" represent fees
WorldCom paid to 3rd party telecommunication network
providers for the right to access the third parties'
Arthur
Anderson

TICE

I
nfoComm.

Asset
Overstateme
nt (?)


networks. Accordi
ng to GAAP, these fees must be
expensed and may not be capitalized. Beginning as
early as the first quarter of 2001, WorldCom's senior
management improperly directed the transfer of line
costs to WorldCom's capital accounts in amounts
sufficient to keep W
orldCom's earnings in line with the
analysts' consensus on WorldCom's earnings. Thus,
WorldCom materially understated its expenses, and
materially overstated its earnings, thereby defrauding
investors.


Under a proposed settlement filed in federal court M
ay
19, 2003, WorldCom Inc. has agreed to pay $500 million
(later raised to $750 million, adding $250 million worth of
stock in the new incarnation of the telecommunications
company) to the Securities and Exchange Commission to
settle charges of a multibill
ion
-
dollar accounting fraud
(would have been $1.5 billion but was lowered due to
reorganization). Under the terms of the proposed
settlement, the funds paid and the common stock
transferred by WorldCom to satisfy the Commission's
judgment will be distribu
ted to victims of the company's
fraud, pursuant to Section 308 of the Sarbanes
-
Oxley Act
of 2002. WorldCom also agreed to undertake extensive
reviews of its corporate governance and internal controls,
as well as required the WorldCom to establish a traini
ng
and education program for WorldCom officers and
employees to minimize the possibility of future violations
of the federal securities laws. In addition, there are
multiple major lawsuits pending against WorldCom and
its officials.

Xerox
Corp.

?






Overstated Revenue for more than four years by
accelerating the recognition of $3 billion in revenu
e and
inflating earnings by about $1.5 billion. Accused of
recognizing revenue on office copier leases too early in
cycles.


KPMG

TICE

Technology

Improper
Revenue
Recognition







































Many of the accounting actions related to Xerox's leasing
arrangements. Under these arrangements, the revenue
stream from Xerox'
s customer leases typically had three
components: the value of the "box," a term Xerox used to
refer to the equipment; revenue that Xerox received for
servicing the equipment over the life of the lease; and
financing revenue that Xerox received on loans to

its
lessees. Under GAAP, Xerox was required to book
revenue from the "box" at the beginning of the lease, but
was required to book revenue from servicing and
financing over the course of the entire lease. According
to the complaint, Xerox relied on accoun
ting actions to
justify shifting more lease revenue to the "box," so that a
greater portion of that revenue could be recognized
immediately.


The complaint alleges that the two accounting actions
with the largest impact on Xerox's financial statements
were

methodologies that Xerox called "return on equity"
and "margin normalization." These two methodologies
alone boosted Xerox's equipment revenues by $2.8
billion and its pre
-
tax earnings by $660 million from 1997
to 2000. Xerox used the return
-
on
-
equity me
thod to shift
revenue to the "box" that the company had historically
allocated to financing. And margin normalization shifted
revenue to the "box" that had historically been allocated
to servicing. In violation of GAAP, Xerox failed to disclose
these metho
dologies, and the numerous changes it made
to them, to investors, creating the appearance that the
company was earning much more from its sales of
equipment than it actually was.


Xerox also used approximately $1 billion in other one
-
time accounting action
s to artificially improve its
operating results. By using these accounting actions and
failing to disclose their use, Xerox violated GAAP as well
as disclosure requirements. These additional one
-
time





















10/6/2003


bna.com







6/6/2003


bna.com

accounting actions included the improper use of
"cushion
" or "cookie jar" reserves, the improper
recognition of the gain from a one
-
time event, and
miscellaneous lease accounting related actions.


Xerox Agreed to pay $10 million in fines and restate its
income for the years 1997
-
2000.
On April 1, 2002, Xerox
a
nnounced a settlement in principle with SEC that called
for a second restatement of its financial results for 1997
through 2000 as well as an adjustment of previously
announced 2001 results. On June 28, 2002, Xerox
restated its consolidated financial state
ments for the
years ending December 31, 1997, 1998, 1999, and 2000,
and revised its previously announced 2001 results. For
1997, net income decreased by $466 million (34.3
percent), 1998 net income decreased by $440 million
(161.2 percent), 1999 net income

decreased by $495
million (37 percent), and 2000 net loss increased by $16
million (6.2 percent). For the 4
-
year period, Xerox
overstated net income by $1.42 billion (52.3 percent).


The SEC sued five current KPMG partners and one
former partner of secur
ities fraud in claiming that the firm
fraudulently let XEROX manipulate accounting practices
to fill a $30 billion gap and make it appear to be meeting
market expectations.
Individual defendants include
Thomas J. Yoho, Joseph T. Boyle, Michael A. Conway,
Anthony P. Dolanski, and Ronald A. Safran.


“Six former Xerox Corp. executives, including two former
chief executive officers and a former chief financial
officer, agreed June 5 to pay more than $22 million to
settle Securities and Exchange Commission ch
arges
they fraudulently misstated the copier company's
financials.

In settling the charges, each defendant
agreed to a permanent injunctino against future securities
law violations. The settlement also imposes
officer/director bars as follows: Allaire, fi
ve years;
Thoman, three years; Romeril, permanent; and Fishbach,
five years. The defendants also agreed to pay civil
penalties in the following amounts: $1 million for Allaire;
$750,000 for Thoman; $1 million for Romeril; $100,000
for Fishbach; $75,000 for

Marchibroda; and $75,000 for
Tayler.”