Accounting Fraud

December 21, 2018

Audit firm Crowe LLP and associated individuals have settled SEC charges arising from significant failures in audits of Corporate Resource Services, Inc., which went bankrupt in 2015 following the disclosure of $100 million in unpaid payroll tax liabilities.  The SEC found that Crowe's audit team identified pervasive risks in its audit of Corporate Resource Services, but failed to take required steps in response.  Crowe will pay a penalty of $1.5 million and retain an independent compliance consultant.  SEC

September 25, 2018

Edward J. DiMaria, the former chief financial officer of Bankrate, Inc., a publicly traded company, plead guilty and was sentenced to ten years in prison for orchestrating an accounting and securities fraud scheme that caused more than $25 million in shareholder losses.  DiMaria admitted that between 2010 and 2014 he took actions to artificially inflate Bankrate’s earnings by leaving millions of dollars in unsupported expense accruals on Bankrate’s books, then selectively reversing those accruals in later quarters to boost earnings, as well as misrepresenting other company expenses.  DiMaria lied to Bankrate's independent auditors to conceal the fraud.  As a result of the accounting fraud, Bankrate’s financial statements filed with the SEC were materially misstated.  S.D. Fla. USAO; DOJ

July 2, 2018

The SEC charged global engineering and construction company KBR Inc. with inflating a key, non-financial statement performance metric known as work in backlog.  KBR agreed to pay a $2.5 million penalty to settle the SEC’s charges. According to the SEC’s order, KBR’s public disclosures of its work in “backlog” were important to investors because the metric was supposed to represent the amount of revenue that KBR expected to receive in the future from “firm orders” under previously awarded contracts. However, the SEC’s order found that in the second quarter of 2012, KBR improperly included $459 million in its publicly disclosed backlog for a pipe fabrication and modular assembly contract in Canada, even though KBR had not actually received - and the counterparty was not obligated to provide - any orders under the contract. SEC

June 28, 2018

Edward J. DiMaria pled guilty to multiple counts of corporate fraud related an accounting and securities fraud scheme that caused over $25 million in shareholder losses. DiMaria was the former CFO of Bankrate Inc. a financial services company that was formally headquartered in North Palm Beach, Florida. DiMaria inflated the company’s earnings that misled shareholders, auditors, and the SEC. DiMaria is required to pay $21 million in restitution to Bankrate shareholders. DOJ

April 30, 2018

The SEC announced that Japan-based Panasonic Corp. will pay more than $143 million to resolve charges of Foreign Corrupt Practices Act (FCPA) and accounting fraud violations involving its global avionics business. According to the SEC’s order, Panasonic’s U.S. subsidiary, Panasonic Avionics Corp. (PAC), a provider of in-flight entertainment and communication systems, offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help PAC in obtaining and retaining business from the airline. At the time it orchestrated the bribery scheme, PAC was negotiating two agreements with the airline valued at more than $700 million. PAC ultimately retained the official and paid approximately $875,000 for a position that required little to no work, using an unrelated third-party vendor to conceal the payments. SEC

March 27, 2018

The SEC charged California-based energy storage and power delivery product manufacturer Maxwell Technologies, Inc. and one of its former sales executives Van Andrews in a fraudulent revenue recognition scheme designed to inflate the company’s reported financial results. According to the SEC’s order, Maxwell Technologies prematurely recognized revenue from the sale of ultracapacitors - small energy storage and power delivery products - in order to better meet analyst expectations. Andrews, a former Maxwell sales executive and corporate officer, allegedly inflated the company’s revenues by entering into secret side deals with customers and by falsifying records in order to conceal the scheme from Maxwell’s finance and accounting personnel and external auditors. Maxwell’s former CEO David Schramm and former controller James DeWitt also were charged for failing adequately to respond to red flags that should have alerted them to the misconduct. The SEC’s order found that Maxwell and Andrews violated antifraud, books and records, and internal accounting controls provisions of the federal securities laws and that Andrews caused certain violations by Maxwell. Both Maxwell and Andrews consented to the SEC’s order without admitting or denying the allegations and agreed to pay penalties of $2.8 million and $50,000, respectively. Andrews also agreed to be barred from serving as an officer or director of a public company for five years. Without admitting or denying the findings that they caused certain violations by Maxwell, Schramm agreed to pay a total of nearly $80,000 in disgorgement, prejudgment interest, and penalty and DeWitt agreed to pay a $20,000 penalty. SEC

March 13, 2018

The SEC charged foreign affiliates of KPMG, Deloitte & Touche, and BDO for their involvement in audit work that circumvented the full oversight of the Public Company Accounting Oversight Board (PCAOB). The firms agreed to settle the charges by paying penalties or disgorging their profits from the audits. According to the SEC’s orders, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company without registering with the PCAOB.  The two principal auditors – KPMG’s affiliate in South Africa and BDO’s Canadian affiliate – were registered with the PCAOB but improperly relied upon the work of the two unregistered foreign component auditors to complete their audits of the company.  This violated PCAOB standards requiring sufficient analysis and inquiry when using the work of another auditor. Without admitting or denying the findings, BDO Canada agreed to pay a $50,000 penalty, KPMG in South Africa agreed to pay a $100,000 penalty, Deloitte in Zimbabwe agreed to pay disgorgement and interest totaling $99,057, and KPMG in Zimbabwe agreed to pay disgorgement and interest totaling $141,305. SEC

February 28, 2018

Deloitte & Touche agreed to pay $149.5 million to resolve allegations of violating the False Claims Act arising from Deloitte’s role as the independent outside auditor of Taylor, Bean & Whitaker Mortgage Corp. (TBW), a failed originator of mortgage loans insured by the Federal Housing Administration (FHA) in the Department of Housing and Urban Development (HUD). According to the government, TBW engaged in a long-running fraudulent scheme involving the sale of fictitious or double-pledged mortgage loans, and as a result, TBW’s financial statements failed to reflect its severe financial distress. The government alleged Deloitte, as TBW’s independent outside auditor, knowingly deviated from applicable auditing standards and therefore failed to detect TBW’s fraudulent conduct enabling TBW to continue originating FHA-insured mortgage loans until TBW collapsed and declared bankruptcy in 2009. DOJ