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Accounting Fraud

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Page 15 of 16

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

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

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

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

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

April 8, 2014

The SEC charged CVS Caremark Corp. with misleading investors about significant financial setbacks and using improper accounting that artificially boosted its financial performance.  CVS  agreed to pay $20M to settle the charges.  SEC

January 24, 2014

The SEC charged public accounting firm KPMG with violating rules that require auditors to remain independent from the public companies they’re auditing to ensure they maintain their objectivity and impartiality.   An SEC investigation found that KPMG broke auditor independence rules by providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books they were auditing.  Some KPMG personnel also owned stock in companies or affiliates of companies that were KPMG audit clients.  KPMG agreed to pay $8.2M to settle the SEC’s charges.  SEC

January 9, 2014

The SEC charged San Francisco-based snack foods company Diamond Foods and its former CFO in an accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts.  Diamond Foods agreed to pay $5M to settle the SEC’s charges.  SEC

September 9, 2014

Don Langford, former chief credit officer and senior vice president of Nebraska-based TierOne Bank, pleaded guilty for his role in a scheme to defraud TierOne’s shareholders and regulators. Specifically, Langford conspired with others to hide losses at the bank by cooking the bank’s books and reporting falsified information to stakeholders, regulators, external auditors, and the investing public. The bank even made an unsuccessful attempt to get taxpayer TARP funds in November 2008. TierOne filed for bankruptcy shortly after the Office of Thrift Supervision shut the bank down in June 2010. DOJ
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