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September 15, 2014

Tennessee-based animal feed company AgFeed Industries, currently in Chapter 11 bankruptcy, agreed to pay back $18 million in illicit profits from an accounting fraud that resulted in an SEC enforcement action earlier this year.  In March, the SEC charged AgFeed charged along with top company executives for repeatedly reporting fake revenues from the company’s China operations in order to meet financial targets and prop up AgFeed’s stock price.  The company obtained illicit gains in stock offerings to investors at the inflated prices resulting from the accounting scheme.  The $18 million to be paid by AgFeed will be distributed to victims of the company’s fraud.  SEC

Tagged in: Accounting Fraud, Misrepresentations, Securities Fraud,

September 11, 2014

Delaware-based bank holding company Wilmington Trust Company (which M&T Bank acquired in May 2011) agreed to pay $18.5 million to settle charges of accounting and disclosure fraud.  According to the government, as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust did not renew, extend, or take other appropriate action on a material amount of its matured loans.  Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting.  SEC

Tagged in: Accounting Fraud, Misrepresentations, Securities Fraud,

August 28, 2014

Lynn R. Blodgett and Kevin R. Kyser, the former CEO and CFO of Dallas-based information technology company, Affiliated Computer Services (now owned by Xerox Corporation), agreed to pay roughly $675,000 to settle charges that they mischaracterized resale transactions to inflate the company’s reported revenue. SEC

Tagged in: Accounting Fraud, Securities Fraud,

August 22, 2014

The SEC charged California-based telecommunications equipment company AirTouch Communications and its former CEO and CFO with orchestrating a fraudulent revenue recognition scheme under which they improperly recognized as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.  They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.  SEC

Tagged in: Accounting Fraud, Misrepresentations, Securities Fraud,

July 30, 2014

The SEC charged CEO Marc Sherman and former CFO Edward L. Cummings of Florida-based computer equipment company QSGI Inc. with violating the Sarbanes-Oxley Act by misrepresenting to external auditors and the investing public the state of the company’s internal controls over financial reporting.  SEC

Tagged in: Accounting Fraud, Regulatory Violations, Securities Fraud,

July 24, 2014

Morgan Stanley agreed to pay $275M to settle charges of misleading investors in a pair of residential mortgage-backed securities (RMBS) securitizations it underwrote, sponsored, and issued.  In an asset-backed securities offering, federal regulations under the securities laws require the disclosure of delinquency information for the mortgage loans serving as collateral.  Morgan Stanley allegedly misrepresented the current or historical delinquency status of mortgage loans underlying two subprime RMBS securitizations that came against a backdrop of rising borrower delinquencies and unprecedented distress in the subprime market.  SEC

Tagged in: Accounting Fraud, Financial Institution Fraud, Housing and Mortgage Fraud, Securities Fraud,

July 14, 2014

Ernst & Young agreed to pay more than $4M to settle charges of violating auditor independence rules that require firms to maintain their objectivity and impartiality with clients.  The SEC found that an Ernst & Young subsidiary lobbied congressional staff on behalf of two audit clients.  Such lobbying activities were impermissible under the SEC’s auditor independence rules because they put the firm in the position of being an advocate for those audit clients.  Despite providing the prohibited legislative advisory services on behalf of the clients, Ernst & Young repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements.  SEC

Tagged in: Accounting Fraud, Regulatory Violations,

June 25, 2014

The SEC announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes.  As a result, the bank’s publicly-traded holding company overstated its income and earnings per share in its financial reporting.  Regions will pay a total of $51M to resolve parallel actions by the SEC, Federal Reserve Board, and Alabama Department of Banking.  SEC

Tagged in: Accounting Fraud, Securities Fraud,

May 20, 2014

The SEC charged James T. Adams, the former chief risk officer at Deloitte LLP, for causing violations of the auditor independence rules that ensure audit firms maintain their objectivity and impartiality with respect to their clients.  Specifically, Adams repeatedly accepted tens of thousands of dollars in casino markers while he was the advisory partner on subsidiary Deloitte & Touche’s audit of a casino gaming corporation.  Adams concealed his casino markers from Deloitte & Touche and lied to another partner when asked if he had casino markers from audit clients of the firm.  He agreed to settle the SEC’s charges by being suspended for at least two years from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.  SEC

Tagged in: Accounting Fraud, Regulatory Violations,

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