Archive

September 29, 2016

Casino-gaming company International Game Technology (IGT)  will pay a $500,000 penalty for firing an employee with several years of positive performance reviews because he reported to senior management and the SEC that the company’s financial statements might be distorted.  The SEC found that the employee was removed from significant work assignments within weeks of raising concerns about the company’s cost accounting model.  He was terminated approximately three months later.  SEC

September 27, 2016

Oil services company Weatherford International will pay a $140 million penalty to settle charges that it inflated earnings by using deceptive income tax accounting.  According to the SEC’s order, Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations.  James Hudgins, Weatherford’s Vice President of Tax, and Darryl Kitay, tax manager, made numerous post-closing adjustments to fill gaps and meet the previously disclosed effective tax rate.  Weatherford regularly touted its favorable effective tax rate to analysts and investors as one of its key competitive advantages, and the fraud created the misperception that Weatherford’s designed tax structure was far more successful than reality.  Weatherford was forced to restate its financial statements on three occasions in 2011 and 2012.   Hudgins and Kitay will pay about $365,000 collectively to settle charges that they were behind the scheme.  SEC

September 19, 2016

Public accounting firm Ernst & Young will pay $9.3 million to settle charges that two of the firm’s audit partners maintained inappropriately close personal relationships with clients and violated rules that ensure firms maintain objectivity and impartiality during audits.  SEC investigations found that Gregory S. Bednar, the senior partner on an engagement team for the audit of a New York-based public company, maintained an improperly close friendship with its chief financial officer, and Pamela Hartford, a different partner serving on an engagement team for the audit of another public company, was romantically involved with its chief accounting officer, Robert Brehl.  Ernst & Young misrepresented in audit reports issued with the companies’ financial statements that it maintained its independence throughout these audits.  SEC

September 8, 2016

The SEC charged two former accounting executives with American Realty Capital Properties (ARCP), now known as VEREIT Inc., with overstating the financial performance of ARCP’s publicly-traded real estate investment trust (REIT).  According to the SEC’s complaint, Brian Block, then ARCP’s CFO, and Lisa McAlister, then ARCP’s Chief Accounting Officer, manipulated the calculation of ARCP’s adjusted funds from operations (AFFO), a key non-GAAP financial metric used by analysts and investors to assess the company’s performance.  Allegedly, after warnings from internal accounting staff that AFFO was incorrectly calculated in ARCP’s 2014 first quarter financial results, Block, with McAlister’s knowledge, falsified the company’s AFFO presentation in the final hours before filing the company’s second quarter results, to make it appear that the company had met second-quarter estimates when in fact it had fallen short.  SEC

July 22, 2016

Accountant Nicholas Bottini will pay a $25,000 penalty and has been permanently suspended from appearing and practicing before the SEC, after conducting a faulty audit of the financial statements of ContinuityX Solutions, Inc., a publicly-traded company that claimed to sell internet services to businesses and whose executives have since been charged by the SEC for allegedly engineering a scheme to grossly overstate the company’s revenue through fraudulent sales.  New York-based accounting firm EFP Rotenberg LLP, where Bottini was a partner at the time, will also pay a $100,000 penalty to settle the SEC’s charges and is prohibited from accepting new public company clients for one year.  SEC

June 16, 2016

Private fund administrator Apex Fund Services (US) Inc. will pay more than $350,000 to settle charges it failed to heed red flags and correct faulty accounting by two clients. SEC investigations found that Apex missed or ignored clear indications of fraud while contracted to keep records and prepare financial statements and investor account statements for funds managed by ClearPath Wealth Management and EquityStar Capital Management, both of which have since been charged with fraud by the SEC.  SEC

June 8, 2016

New York-based electronics company IEC Electronics Corp. will pay $200,000 to settle charges that it overstated the company’s profits in financial statements by using false inventory accounting.  An SEC investigation found the false accounting to have been orchestrated by IEC’s then-executive vice president of operations Donald Doody and the controller of one of IEC’s subsidiaries, Ronald Years.  Doody and Years collectively will pay about $94,000 to settle the SEC’s charges.  In addition, Doody has been barred from serving as an officer or director of a public company for five years and Years is permanently suspended from appearing and practicing before the SEC as an accountant.  SEC

May 20, 2016

The SEC announced a whistleblower award of more than $450,000 to be split between two individuals for a tip that led the agency to open a corporate accounting investigation and for their assistance once the investigation was underway.  SEC

April 19, 2016

Technology manufacturer Logitech International will pay a $7.5 million penalty for fraudulently inflating its fiscal year 2011 financial results to meet earnings guidance and committing other accounting-related violations during a five-year period.  Logitech’s then-controller and then-director of accounting will pay collective penalties of $75,000 for violations related to Logitech’s warranty accrual accounting and failure to amortize intangibles from an earlier acquisition.  The SEC also filed a complaint in federal court against Logitech’s then-CFO and then-acting controller alleging that they deliberately minimized the write-down of millions of dollars of excess components parts for a product for which Logitech had excess inventory.  SEC

April 14, 2016

The SEC announced fraud charges against the town of Ramapo, New York, the town’s local development corporation, and four town officials.  The SEC alleges that Ramapo officials resorted to fraud to hide the strain in the town’s finances caused by the approximately $60 million cost to build a baseball stadium as well as the town’s declining sales and property tax revenues.  They cooked the books of the town’s primary operating fund to falsely depict positive balances of between $1.4 million and $4.2 million during a six-year period when the town had actually accumulated balance deficits as high as nearly $14 million.  In addition, because the stadium bonds issued by the Ramapo Local Development Corp (RLDC) were guaranteed by the town, certain officials masked an operating revenue shortfall at the RLDC such that investors were unaware the town would likely need to subsidize those bond payments and further deplete the general fund.  SEC