Accounting Fraud

September 9, 2015

The SEC charged national audit firm BDO USA and five of its partners with dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of staffing services company General Employment Enterprises, after failing to obtain reasonable and coherent explanations about why $2.3 million (approximately half of the company’s assets) had gone missing.  In a related action, the SEC filed fraud charges against Stephen Pence, then General Employment Enterprises’ chairman of the board and majority shareholder, and a former U.S. Attorney and lieutenant government of Kentucky.  BDO agreed to admit wrongdoing and pay disgorgement and penalties of $2.1 million.  BDO’s five partners also settled the charges brought against them and agreed to pay $75,000 in penalties collectively.  The SEC’s litigation with Stephen Pence continues.  SEC

September 8, 2015

The SEC charged former CEO and CFO of now-bankrupt video management company KIT Digital with falsifying financial statements to make the company appear more profitable than it was.  The defendants’ variety of schemes, as alleged by the SEC, included an off-the-books slush fund used to generate payments back to KIT to create the false appearance that the company was being paid for its products.  The U.S. Attorney’s Office for the Southern District of New York brought parallel criminal charges against both men.  SEC

September 8, 2015

Financial publishing company Bankrate Inc. agreed to pay a $15 million penalty to settle accounting fraud charges.  The SEC alleged that Bankrate’s then-CFO, Director of Accounting, and Vice President of Finance, engaged in a scheme to fabricate revenues and avoid booking certain expenses to meet analyst expectations for its adjusted earnings before interest, taxes, depreciation, and amortization, a key financial metric known as “EBITDA.”  The SEC charged the three former executives as well.  SEC

September 8, 2015

Sports supplement and nutrition company MusclePharm agreed to pay a $700,000 penalty for committing a series of accounting and disclosure violations, including the omission or understatement of nearly $500,000 worth of perks bestowed upon company executives.  Three current or former executives and the company’s former audit committee chair also agreed to pay penalties of $210,000 collectively to settle related charges brought against them.  SEC

August 6, 2015

The SEC announced charges against Knoxville-based Miller Energy Resources Inc. (Miller), Miller’s former CFO, Miller’s current COO, and the audit team leader at Miller’s former independent auditor.  The SEC alleges that defendants overstated the value of Miller oil and gas properties in Alaska by more than $400 million.  Allegedly, this inflated valuation turned the penny-stock company into one that eventually listed on the NYSE at a high of $9 per share.  SEC

June 5, 2015

Computer Sciences Corporation agreed to pay $190 million to settle SEC charges of manipulating financial results and concealing significant problems about the company’s contract with the UK’s National Health Service, the company’s largest and most high-profile contract.  Former CEO Michael Laphen agreed to return to CSC more than $3.7 million in compensation under the clawback provision of the Sarbanes-Oxley Act and pay a $750,000 penalty.  Former CFO Michael Mancuso agreed to return $369,100 in compensation and pay a $175,000 penalty.  SEC

May 26, 2015

Deutsche Bank agreed to pay a $55 million penalty to settle SEC charges of filing misstated financial reports during the height of the financial crisis that failed to take into account a material risk for potential losses estimated to be in the billions of dollars.  SEC

May 6, 2015

The SEC filed fraud charges against four former officers of Wilmington Trust for intentionally understating past due bank loans during the financial crisis. According to the SEC, the former officials improperly excluded hundreds of millions of dollars of past due real estate loans from financial reports filed by Wilmington Trust in 2009 and 2010, violating a requirement to fully disclose the amount of loans 90 or more days past due. The former Delaware-based bank holding company was acquired by M&T Bank in May 2011 and paid $18.5 million in September 2014 to settle related SEC charges of improper accounting and disclosure fraud. SEC

April 9, 2015

Katsuichi Fusamae, a senior accounting officer at Molex Japan Co. Ltd., agreed to settle SEC charges he cost his company millions of dollars in trading losses and manipulated accounting records to avoid detection.  Specifically, the SEC alleged Fusamae engaged in unauthorized equity trading in the company’s brokerage accounts that resulted in losses of more than $110 million and then concealed the losses by taking out unauthorized and undisclosed company loans with Japanese banks and brokerage firms to replenish account balances.  Fusamae admitted wrongdoing and accepted a permanent bar from serving as an officer or director of a publicly traded company with possible monetary sanctions to come.  SEC

April 1, 2015

Timothy Scronce agreed to settle charges of defrauding Illinois-based telecommunications company PCTEL Inc. and its shareholders during and after its acquisition of his business TelWorx Communications LLC and his three related telecommunications companies.  According to the SEC, Scronce used false accounting entries to inflate TelWorx’s quarterly revenues and earnings in the months leading up to the purchase to inflate the price PCTEL paid for the companies.  He also allegedly falsified PCTEL’s books and records and circumvented the company’s internal controls by recording bogus transactions.  Scronce consented to the SEC’s order requiring him to return his allegedly ill-gotten gains with interest, pay a civil penalty, and be barred for 10 years from serving as a public company officer or director.  SEC