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Accounting Fraud

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September 24, 2020

BMW AG and two of its U.S. subsidiaries will pay $18 million to resolve charges that its public reporting inflated retail sales in the U.S. between 2015 and 2017, allowing it to meet sales targets.  This information, which BMW allegedly knew to be inaccurate, was then provided to investors in bond offerings by BMW’s U.S. subsidiary.  SEC

August 25, 2020

Computer manufacturer Super Micro Computer, Inc. has agreed to pay a penalty of $17.5 million to resolve allegations that the company prematurely recognized revenue and understated expenses.  The SEC alleged that the company, including its former CFO, Howard Hideshima, pushed employees to maximize end-of-quarter revenue.  Hideshima agreed to pay disgorgement and penalties totaling $350,000.  SEC

July 31, 2020

Canadian company Bausch Health, formerly known as Valeant Pharmaceuticals, will pay a $45 million penalty to resolve charges that its executives engaged in improper revenue recognition and misleading disclosures in SEC filings and earnings presentations between 2014 and 2015.  The company was alleged to have recorded false sales of products to specialty pharmacy Philidor Rx Services and its affiliates, which were controlled by Valeant.  In addition, Valeant allegedly misrepresented the source and materiality of revenue it received following a 500% increase in the price of its diabetes drug Glumetza.  Former CEO J. Michael Pearson will pay a civil penalty of $250,000; former CFO Howard B. Schiller will pay a civil penalty of $100,000; former controller Tanya Carro will pay a civil penalty of $75,000.  The individuals also agreed to return specified portions of their incentive compensation to the company.  SEC

February 19, 2020

Diageo plc will pay $5 million to resolve SEC charges that the alcohol producer's North American subsidiary, Diageo North America, engaged in channel-stuffing by pressuring distributors to buy products in excess of demand in order to meet internal sales targets in the face of declining market conditions. Diageo failed to disclose the trends that resulted from shipping products in excess of demand, the positive impact the overshipping had on sales and profits, and the negative impact that the unnecessary increase in inventory would have on future growth. SEC

Top Ten SEC and CFTC Recoveries of 2019

Posted  01/24/20
Silver Whistle Hanging
2019 was another busy year for the SEC and CFTC.  Once again, the SEC netted hundreds of millions of dollars in penalties and fines from companies and individuals accused of defrauding investors, breaching fiduciary duties, and violating the securities laws.  And that’s in addition to the SEC’s robust FCPA enforcement in 2019.  Meanwhile, the CFTC continued to root out market manipulators and other fraudsters...

January 7, 2020

After self-disclosing to the government about grant accounting errors in 2011, the University of North Carolina at Chapel Hill (UNC) has agreed to pay back $4.5 million in excess funds received from the National Institutes of Health (NIH).  The errors had been in effect between two different periods, from 2007 to 2011 and from 2014 to 2017, and had caused the University to inadvertently charge salary costs to grants after the grant terms had ended.  USAO MDNC

December 18, 2019

MetLife, Inc. has agreed to pay $10 million to settle charges of violating internal accounting control provisions of federal securities laws.  Of the two errors that resulted from these violations, one ran for 25 years and involved the improper release of reserves for annuitants presumed dead after minimal attempts to make contact.  A second error involved the overstating of reserves and understating of income related to a subsidiary's variable annuity guarantees.  In 2017, Metlife increased reserves by $510 million to correct the first error, and reduced reserves by $896 million to correct the second.  SEC

December 5, 2019

Brand management company Iconix Brand Group Inc. and former top executives have agreed to settle SEC fraud charges by agreeing to pay at least $5.5 million.  The complaint against Iconix, former CEO Neil Cole, former COO Seth Horowitz, and former CFO Warren Clamen alleged that the executives profited off a fraudulent scheme that created fictitious revenue and concealed the company’s lackluster earnings, while Iconix failed to recognize false revenue and made false statements to the SEC.  Horowitz and Clamen have agreed to settle, while the charges against Cole remain pending.  SEC

October 30, 2019

Outcome Health, the trade name for ContextMedia LLC, will pay $70 million and enter into a Non-Prosecution Agreement with the U.S. to resolve allegations that the company, which sells digital advertising to be displayed in medical offices -- its primary customers are pharmaceutical companies -- fraudulently sold advertising inventory that it did not have.  To conceal this, Outcome and its executives falsified reports to customers, claiming to have delivered advertising to the contracted number of screens, and inflated patient engagement metrics.  This fraudulent activity resulted in an overstatement of Outcome's reported revenue, and Outcome used those fraudulent financial statements to obtain almost $1 billion in debt and equity financing in 2015 and 2016.   DOJ

September 27, 2019

Pharmaceutical manufacturer Mylan N.V. has agreed to pay $30 million to resolve SEC charges that the company failed to disclose or adequately accrue for possible losses arising from a DOJ investigation into Mylan's classification, pricing, and rebate practices regarding its EpiPen product.  In 2017, Mylan agreed to pay $465 million to resolve that DOJ investigation.  SEC
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