Top finance executives, such as chief financial officers (CFO) and chief accounting officers (CAO), represented 44 per cent of the total number of individuals which were charged by the US Securities and Exchange Commission (SEC) in 2008 with committing financial statement fraud, according to a recent survey.
This was the result of the third annual study of SEC Accounting and Auditing Enforcement Releases, conducted by the Deloitte Forensic Center. Apart from CFOs and CAOs, it also found that both corporate chief executive officers and other members of senior management, each represented 24 per cent of allegations, while directors and general counsel both represented four per cent of the executives cited.
Meanwhile, the survey also found that revenue recognition fraud, once the most prevalent form of financial statement fraud, has been in steady decline since the beginning of the decade. The category represented 30 per cent of all financial statement fraud in 2008, down slightly from 33 per cent in 2007.
The other top infractions were improper disclosure (18 per cent), and manipulation of expenses (16 per cent).
“If alleged revenue recognition frauds continue to decline, they could soon be at a level similar to that of other alleged financial statement fraud schemes rather than being several times more common, as has been the case during most of the decade. This may have implications for corporate fraud risk assessments and for regulatory policy,” said Howard Scheck, a partner for Deloitte Financial Advisory Services’ Forensic & Dispute Services Practice.
Across industries, financial statement fraud was most prevalent in technology, media and telecommunications companies (30 per cent in 2008), consumer business (29 per cent), financial services (18 per cent), and life sciences and health care (12 per cent). Mr Scheck noted that compared to 2007, fraud by technology and media companies had declined by six per cent, while those by financial services firms and in the consumer sector edged up. He said this could be due to increased regulatory focus on the latter industries.
“Organisations may wish to consider how financial statement risks may be changing and any impact such changes may have on the organisation’s fraud risk assessment and risk management activities,” he said.
Sunday 27 December 2009
Koss fires top executive for US$20 million personal shopping spree
Headphone maker Koss has fired a vice-president of finance who allegedly took US$20 million from company coffers to make purchases of expensive clothing, jewellery, and other items for personal use.
In a criminal complaint filed by the US Attorney’s Office in Wisconsin, Sujata “Sue” Sachdeva, who held the position since 1992, has admitted she used her position at the company to authorise company funds to pay her credit card bills. She then falsified Koss’s bank account records to hide the act, according to a report by news agency Reuters.
Between January 2008 and December 2009 alone, Ms Sachdeva allegedly accumulated a credit card bill of more than US$4.5 million. Bills often amounted to hundreds of thousands of dollars. They included nearly US$1.4 million at a high end fashion retailer in Wisconsin called Valentina Boutique, US$670,000 at women’s clothing store Au Courant in Milwaukee, US$649,000 at Zita Bridal Salon in Wisconsin, and US$255,000 at Karat 22 Jewellers in Texas.
Preliminary estimates have put the amount of unauthorised transactions since 2006 at more than US$20 million, according to the criminal complaint. The company, which posted first quarter sales of US$10.8 million, has said that as a result its financial statements since the end of its 2006 fiscal year will need to be restated. It has also placed two members of its accounting staff, who reported to Sachdeva, on unpaid administrative leave, the report said.
The unauthorised transactions was first spotted by American Express, with which Sachdeva paid her purchases with, when they noticed that her personal credit bills were being settled by large cash payments from Koss’s corporate bank accounts.
They notified Koss’s chief executive, Michal Koss, who began an internal investigation, and found boxes of women’s clothing in Sachdeva’s office, some with price tags still attached. They also found credit card statements in Sachdeva’s name.
Koss told the news agency that it is continuing its internal investigation of the matter, as well as efforts to recover the merchandise purchased using company funds. Sachdeva’s lawyer, Michael Hart, has declined to comment.
In a criminal complaint filed by the US Attorney’s Office in Wisconsin, Sujata “Sue” Sachdeva, who held the position since 1992, has admitted she used her position at the company to authorise company funds to pay her credit card bills. She then falsified Koss’s bank account records to hide the act, according to a report by news agency Reuters.
Between January 2008 and December 2009 alone, Ms Sachdeva allegedly accumulated a credit card bill of more than US$4.5 million. Bills often amounted to hundreds of thousands of dollars. They included nearly US$1.4 million at a high end fashion retailer in Wisconsin called Valentina Boutique, US$670,000 at women’s clothing store Au Courant in Milwaukee, US$649,000 at Zita Bridal Salon in Wisconsin, and US$255,000 at Karat 22 Jewellers in Texas.
Preliminary estimates have put the amount of unauthorised transactions since 2006 at more than US$20 million, according to the criminal complaint. The company, which posted first quarter sales of US$10.8 million, has said that as a result its financial statements since the end of its 2006 fiscal year will need to be restated. It has also placed two members of its accounting staff, who reported to Sachdeva, on unpaid administrative leave, the report said.
The unauthorised transactions was first spotted by American Express, with which Sachdeva paid her purchases with, when they noticed that her personal credit bills were being settled by large cash payments from Koss’s corporate bank accounts.
They notified Koss’s chief executive, Michal Koss, who began an internal investigation, and found boxes of women’s clothing in Sachdeva’s office, some with price tags still attached. They also found credit card statements in Sachdeva’s name.
Koss told the news agency that it is continuing its internal investigation of the matter, as well as efforts to recover the merchandise purchased using company funds. Sachdeva’s lawyer, Michael Hart, has declined to comment.
Monday 21 December 2009
FTC sues Intel for anti-competitive practices
The US Federal Trade Commission has sued microprocessor-making giant Intel for illegally using its dominant industry position to shut out competitors and to strengthen its monopoly.
The FTC complaint alleges that Intel threw its weight around using a system of threats and rewards – called exclusive or restrictive dealing – aimed towards some of the biggest computer makers in the world, in order to force them not to buy computer chips from its rivals. Additionally, the commission also charged that Intel also secretly wrote software that stunted the performance of computer chips made by competitors, and that it is plotting to employ similar tactics as it eyes the smaller but growing competition in the adjacent market for computer graphics chips.
The commission is not suing for money, but for Intel to change the way it conducts business. It is seeking an order to prevent it from using threats, bundled prices, to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its microprocessors or graphics chips. It also wants Intel to submit some business decisions for approval by the commission before carrying them out, and to set up some type of monitoring of its practices.
“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly. It’s been running roughshod over the principles of fair play and the laws protecting competition on … merits,” said Richard Feinstein, director of the FTC’s bureau of competition, in a statement.
Douglas Melamed, general counsel for Intel, told the New York Times that the FTC action was “misguided and unwarranted”, and amounted to “new rules for micromanaging business conduct.” He said the FTC’s recommendations would unfairly constrain the company’s pricing and marketing, hamper product design process and innovation, and force it to give away intellectual property.
According to the FTC, Intel’s actions violated section five of the FTC Act, which prohibits unfair methods of competition, and deceptive acts and practices in commerce.
This latest complaint comes just one month after Intel reached a US$1.25 billion settlement with rival AMD, over anti-trust and patent claims. In May, the European Commission fined Intel US$1.6 billion for abusing its dominant market position – a decision which the company is appealing. Intel was also found to be anti-competitive by South Korean regulators, who ordered the company to pay a fine of US$25.5 million, and by the Japan Fair Trade Commission, which ordered the company to eliminate discounts which were discriminatory to its competitors.
The case will go before an administrative law judge in September.
The FTC complaint alleges that Intel threw its weight around using a system of threats and rewards – called exclusive or restrictive dealing – aimed towards some of the biggest computer makers in the world, in order to force them not to buy computer chips from its rivals. Additionally, the commission also charged that Intel also secretly wrote software that stunted the performance of computer chips made by competitors, and that it is plotting to employ similar tactics as it eyes the smaller but growing competition in the adjacent market for computer graphics chips.
The commission is not suing for money, but for Intel to change the way it conducts business. It is seeking an order to prevent it from using threats, bundled prices, to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its microprocessors or graphics chips. It also wants Intel to submit some business decisions for approval by the commission before carrying them out, and to set up some type of monitoring of its practices.
“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly. It’s been running roughshod over the principles of fair play and the laws protecting competition on … merits,” said Richard Feinstein, director of the FTC’s bureau of competition, in a statement.
Douglas Melamed, general counsel for Intel, told the New York Times that the FTC action was “misguided and unwarranted”, and amounted to “new rules for micromanaging business conduct.” He said the FTC’s recommendations would unfairly constrain the company’s pricing and marketing, hamper product design process and innovation, and force it to give away intellectual property.
According to the FTC, Intel’s actions violated section five of the FTC Act, which prohibits unfair methods of competition, and deceptive acts and practices in commerce.
This latest complaint comes just one month after Intel reached a US$1.25 billion settlement with rival AMD, over anti-trust and patent claims. In May, the European Commission fined Intel US$1.6 billion for abusing its dominant market position – a decision which the company is appealing. Intel was also found to be anti-competitive by South Korean regulators, who ordered the company to pay a fine of US$25.5 million, and by the Japan Fair Trade Commission, which ordered the company to eliminate discounts which were discriminatory to its competitors.
The case will go before an administrative law judge in September.
SFO sets out policy on treating self-reported fraud
The head of UK’s graft buster has set out the conditions under which the country’s Serious Fraud Office will pursue self-reported incidents of fraud by companies as either a civil or criminal matter.
In an open letter to New York-based lawyer Marcus Asner, a partner at law firm Arnold & Porter, Richard Alderman, the UK agency’s director, said that when considering whether to treat self-reported fraud as a civil or criminal case, it would primarily look at a number of factors. This would include the seriousness of the wrongdoing, whether it was an isolated incident, and whether the company in question had been previously warned that its internal controls were inadequate.
He also said it would depend on whether the company reported the wrongdoing in a timely and reasonable manner, and whether it provided a report to the SFO which was detailed and complete.
Mr Alderman also touched upon other topics, such as how far should companies go in conducting internal investigation to avoid additional probing by the SFO, and the circumstances under which monitors will be appointed to make sure that a company does not commit the same offense again.
He said that the SFO expects companies to present a report which allows the agency to determine whether the wrongdoing was thoroughly investigated, and discussing remediation measures.
On the latter issue, he said that the SFO will not appoint a monitor in cases where a company’s board can prove that it is committed to enforcing a culture against corruption. With serious cases, he said that the SFO will expect companies to actively propose measures to monitor compliance. He also said the agency will work with its counterparts in other countries if the wrongdoing involved multiple jurisdictions.
On attorney-client privilege, he said the SFO acknowledged that the concept of waiver of attorney client privilege was different in the US, when compared to the UK. He will not expect US companies to provide documents consisting of legal advice it received on how it should conduct an internal investigation, the types of remedial options that are open to them, or how it should negotiate with the SFO. The agency will expect companies to provide a full factual report on the investigation, including notes taken during investigation interviews.
Finally, he said that the SFO would consider closing a case, without further action, where a company self-reported violations. There would have to be “special circumstances”, and the company would have to offer to pay remediation.
Alternatively, he said it could also happen if a company conducts its investigation into a suspected violation, and the report on the investigation that does not support the initial suspicions. However, Mr Alderman added that he expected such cases where cases are closed without further action to be rare.
In an open letter to New York-based lawyer Marcus Asner, a partner at law firm Arnold & Porter, Richard Alderman, the UK agency’s director, said that when considering whether to treat self-reported fraud as a civil or criminal case, it would primarily look at a number of factors. This would include the seriousness of the wrongdoing, whether it was an isolated incident, and whether the company in question had been previously warned that its internal controls were inadequate.
He also said it would depend on whether the company reported the wrongdoing in a timely and reasonable manner, and whether it provided a report to the SFO which was detailed and complete.
Mr Alderman also touched upon other topics, such as how far should companies go in conducting internal investigation to avoid additional probing by the SFO, and the circumstances under which monitors will be appointed to make sure that a company does not commit the same offense again.
He said that the SFO expects companies to present a report which allows the agency to determine whether the wrongdoing was thoroughly investigated, and discussing remediation measures.
On the latter issue, he said that the SFO will not appoint a monitor in cases where a company’s board can prove that it is committed to enforcing a culture against corruption. With serious cases, he said that the SFO will expect companies to actively propose measures to monitor compliance. He also said the agency will work with its counterparts in other countries if the wrongdoing involved multiple jurisdictions.
On attorney-client privilege, he said the SFO acknowledged that the concept of waiver of attorney client privilege was different in the US, when compared to the UK. He will not expect US companies to provide documents consisting of legal advice it received on how it should conduct an internal investigation, the types of remedial options that are open to them, or how it should negotiate with the SFO. The agency will expect companies to provide a full factual report on the investigation, including notes taken during investigation interviews.
Finally, he said that the SFO would consider closing a case, without further action, where a company self-reported violations. There would have to be “special circumstances”, and the company would have to offer to pay remediation.
Alternatively, he said it could also happen if a company conducts its investigation into a suspected violation, and the report on the investigation that does not support the initial suspicions. However, Mr Alderman added that he expected such cases where cases are closed without further action to be rare.
Tuesday 15 December 2009
Taiwanese LCD maker fined US$220 for rigging market
A Taiwanese producer of LCD displays has been fined US$220 million after pleading guilty to participating in a price-fixing racket. This brings to six the number of companies which has been implicated in the global LCD price-fixing ring that authorities in the US, Europe, and in Japan have been investigating.
Tainan-based Chi Mei Optoelectronics has pleaded guilty to one count of participating in a conspiracy to fix the prices of LCD display panels, which are used in consumer electronics products such as computer monitors, notebook PCs, mobiles phones, and televisions, between September 2001 and December 2006.
The five other companies which have previously pleaded guilty are LG Display, Sharp, Chunghwa Picture Tubes, Seiko Epson, and Hitachi. They have been fined an aggregate US$860 million, and nine executive have been charged in the-going investigation.
According to the US Department of Justice, the company manipulated the market by holding meetings and conversations with competitors, at which point they would agree to sell goods at certain pre-determined levels. To enforce and monitor the agreement, Chi Mei exchanged information on its sales of LCD panels with competitors, the agency said.
Its actions directly affected some of the largest computer and television manufacturers in the world, including Apple, Dell, and HP. By the end of the period in which Chi Mei engaged in the price-fixing racket, the global market for LCD panels was valued at US$70 billion.
As part of the plea agreement, Chi Mei has agreed to cooperate with the government’s on-going anti-trust investigation.
Price-fixing is in violation of the US Sherman Act, and each violation carries a maximum penalty of US$100 million. This could be increased to twice the gain derived from the crime, or double the loss suffered by its victims.
Commenting on its decision to plead guilty, Eddie Chen, Chi Mei’s head of finance, told Bloomberg: “We thought it was the best way to get things over.”
Tainan-based Chi Mei Optoelectronics has pleaded guilty to one count of participating in a conspiracy to fix the prices of LCD display panels, which are used in consumer electronics products such as computer monitors, notebook PCs, mobiles phones, and televisions, between September 2001 and December 2006.
The five other companies which have previously pleaded guilty are LG Display, Sharp, Chunghwa Picture Tubes, Seiko Epson, and Hitachi. They have been fined an aggregate US$860 million, and nine executive have been charged in the-going investigation.
According to the US Department of Justice, the company manipulated the market by holding meetings and conversations with competitors, at which point they would agree to sell goods at certain pre-determined levels. To enforce and monitor the agreement, Chi Mei exchanged information on its sales of LCD panels with competitors, the agency said.
Its actions directly affected some of the largest computer and television manufacturers in the world, including Apple, Dell, and HP. By the end of the period in which Chi Mei engaged in the price-fixing racket, the global market for LCD panels was valued at US$70 billion.
As part of the plea agreement, Chi Mei has agreed to cooperate with the government’s on-going anti-trust investigation.
Price-fixing is in violation of the US Sherman Act, and each violation carries a maximum penalty of US$100 million. This could be increased to twice the gain derived from the crime, or double the loss suffered by its victims.
Commenting on its decision to plead guilty, Eddie Chen, Chi Mei’s head of finance, told Bloomberg: “We thought it was the best way to get things over.”
US House passes sweeping financial reform bill
The US House of Representatives has passed a bill which is expected to help usher in the most sweeping changes to the way the country regulates its financial services sector since the economic programmes of the 1930s, which lifted the US out of the depression.
Defying stiff resistance from the US Republican party as well as banking sector lobbyists, the bill passed by a vote of 223 to 202. It will strengthen consumer protection, as well as reinforce government regulation in the financial services industry. Before it is made into law, it still needs to be approved by the US Senate, but some US senators expect it to be passed within the first six months of 2010.
Under the House version of the bill, which is slightly different than the one being debate in the US Senate, the US Federal Reserve would be stripped of its powers to write consumer protection laws. This responsibility would be taken over by a newly-created independent Consumer Financial Protection Agency which will go after abuses such as unscrupulous mortgage deals and excessive credit card rates.
Among its many provisions, it will also create a new body called the Financial Services Oversight Council to identify and regulate financial firms that are so large and interconnected that they are considered too big to fail. It will also give the US government the right to step in and dismantle failing non-bank financial firms that threaten the economy, powers that have been put in place to avoid another collapse such as that faced by Lehman Brothers or the American Insurance Group.
Meanwhile, the Government Accountability Office, an investigative arm of the US Congress, will be bestowed the authority to audit the US Federal Reserve. Banks will also have to pay the Federal Deposit Insurance Corporation US$150 billion to set up a fund in case of future failures in the US financial sector.
In his weekly radio and internet address, US President Barrack Obama said that although the roots of the most recent financial slump can be traced to the use of “easy credit” that encouraged people to borrow regardless of their financial position, he added that “much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”
“This legislation brings us another important step closer to necessary, comprehensive financial reform,” he added.
Defying stiff resistance from the US Republican party as well as banking sector lobbyists, the bill passed by a vote of 223 to 202. It will strengthen consumer protection, as well as reinforce government regulation in the financial services industry. Before it is made into law, it still needs to be approved by the US Senate, but some US senators expect it to be passed within the first six months of 2010.
Under the House version of the bill, which is slightly different than the one being debate in the US Senate, the US Federal Reserve would be stripped of its powers to write consumer protection laws. This responsibility would be taken over by a newly-created independent Consumer Financial Protection Agency which will go after abuses such as unscrupulous mortgage deals and excessive credit card rates.
Among its many provisions, it will also create a new body called the Financial Services Oversight Council to identify and regulate financial firms that are so large and interconnected that they are considered too big to fail. It will also give the US government the right to step in and dismantle failing non-bank financial firms that threaten the economy, powers that have been put in place to avoid another collapse such as that faced by Lehman Brothers or the American Insurance Group.
Meanwhile, the Government Accountability Office, an investigative arm of the US Congress, will be bestowed the authority to audit the US Federal Reserve. Banks will also have to pay the Federal Deposit Insurance Corporation US$150 billion to set up a fund in case of future failures in the US financial sector.
In his weekly radio and internet address, US President Barrack Obama said that although the roots of the most recent financial slump can be traced to the use of “easy credit” that encouraged people to borrow regardless of their financial position, he added that “much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”
“This legislation brings us another important step closer to necessary, comprehensive financial reform,” he added.
Sunday 6 December 2009
Former pharmaceutical exec charged with bribery
A UK-based former senior healthcare executive for US consumer giant Johnson & Johnson has been accused of bribing Greek officials to win business contracts.
According to UK’s The Times¸ it is believed to be the first time the country’s Serious Fraud Office (SFO) has charged a British national with paying a bribe to someone outside the country.
The accused Robert John Dougall, 44, is a former vice-president of DePuy International – a Johnson & Johnson subsidiary based in Leeds. He appeared at a City of Westminster Magistrates’ Court charged with one count of conspiracy to corrupt.
The SFO said between February 2002 and December 2005, Dougall made corrupt payments to medical professionals working in the Greek public healthcare system. The bribes were made to win a contract for the sale of orthopaedic products.
The case originated from an investigation of healthcare companies by the US Department of Justice. The SFO did not further elaborate on the case. Dougall was released on bail, and the case has been adjourned until February 3.
Johnson & Johnson disclosed two years ago that some of its foreign subsidiaries may have made improper payments over of the course of the sale of medical equipment.
According to UK’s The Times¸ it is believed to be the first time the country’s Serious Fraud Office (SFO) has charged a British national with paying a bribe to someone outside the country.
The accused Robert John Dougall, 44, is a former vice-president of DePuy International – a Johnson & Johnson subsidiary based in Leeds. He appeared at a City of Westminster Magistrates’ Court charged with one count of conspiracy to corrupt.
The SFO said between February 2002 and December 2005, Dougall made corrupt payments to medical professionals working in the Greek public healthcare system. The bribes were made to win a contract for the sale of orthopaedic products.
The case originated from an investigation of healthcare companies by the US Department of Justice. The SFO did not further elaborate on the case. Dougall was released on bail, and the case has been adjourned until February 3.
Johnson & Johnson disclosed two years ago that some of its foreign subsidiaries may have made improper payments over of the course of the sale of medical equipment.
DynCorp discloses violation, fires compliance chief
US defence contractor DynCorp has fired one of its top lawyers, after it was revealed earlier this week that the company had violated the US Foreign Corrupt Practices Act when it tried to speed up the issuance of visas and licenses related to its work for the US government overseas.
The company said it made a filing with the US Securities and Exchange Commission (SEC) on November 9 after it had discovered that as much as US$300,000 had been spent in a single questionable transaction. It also self-disclosed to the US Department of Justice. The SEC filing was not disclosed until earlier this month.
The money was paid to a subcontractor “in connection with servicing a single existing task order that the company has with a US government agency”, DynCorp said. The funds were used to expedite the issuance of a limited number of visas and licences from foreign government agencies, the company added.
Douglas Ebner, a spokesman for DynCorp, decline to further elaborate on the violation, but he told the Wall Street Journal that it makes clear to its employees that business must always be conducted legally and ethically.
“We found this internally, and voluntarily brought it to the Department of Justice and the SEC. We feel that it is very important to be proactive,” he added. The company said it has hired a consultant to investigate the matter further.
Both the SEC and the US Department of Justice declined to comment.
In a separate filing, the company also said that it had terminated the employment Curtis Schehr, a senior vice president, executive counsel, and the company’s chief compliance officer. DynCorp declined to comment on whether it was related to the FCPA violation.
The company said it made a filing with the US Securities and Exchange Commission (SEC) on November 9 after it had discovered that as much as US$300,000 had been spent in a single questionable transaction. It also self-disclosed to the US Department of Justice. The SEC filing was not disclosed until earlier this month.
The money was paid to a subcontractor “in connection with servicing a single existing task order that the company has with a US government agency”, DynCorp said. The funds were used to expedite the issuance of a limited number of visas and licences from foreign government agencies, the company added.
Douglas Ebner, a spokesman for DynCorp, decline to further elaborate on the violation, but he told the Wall Street Journal that it makes clear to its employees that business must always be conducted legally and ethically.
“We found this internally, and voluntarily brought it to the Department of Justice and the SEC. We feel that it is very important to be proactive,” he added. The company said it has hired a consultant to investigate the matter further.
Both the SEC and the US Department of Justice declined to comment.
In a separate filing, the company also said that it had terminated the employment Curtis Schehr, a senior vice president, executive counsel, and the company’s chief compliance officer. DynCorp declined to comment on whether it was related to the FCPA violation.
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