Settlement Information
selected settled cases

Business,
settlement amount:
Nature of contribution.
(Year settled)


Software education and training, $10.5M: 
Developed and helped draft new accounting allegations.  Rather than filing a MTD, company settled shortly after complaint was filed.  (2000)


Wireless cable TV, $5.05M: 
Developed and helped draft new accounting allegations with significantly larger alleged misstatements, which were sustained.  Later, began developing evidence to add auditor as defendant; company settled shortly thereafter.  Senior counsel said pressure from auditor led to settlement.  (2001)

 

Prepaid phone cards, $27.1M total: $15M from auditor, $1M from underwriter and $11.1M from company: 
Case involved admitted destruction  and alteration of workpapers by the audit firm.  Heavily involved in planning and preparing for auditor depositions covering destruction and alteration; also was second chair. (2001, 2002 and 2003, respectively.)

 

$17M from auditor: 
Helped develop and draft allegations to add auditor as defendant, which were sustained.  Auditor settled later.  (2002, company settled in 2001.)


Medical network management, $10.1M, unknown auditor contribution: 
Developed and helped draft new §11 and new accounting allegations, which were both sustained.  Later, developed and helped draft allegations to add auditor as defendant.  Company and auditor settled shortly thereafter.  (2002)

 

Broadband internet access equipment, $4.25M from auditor: 
First post-PSLRA case upheld by Judge Whyte.  Developed and helped draft allegations to add auditor as defendant, which were sustained.  Heavily involved in planning and preparing for audit partner deposition; also was second chair.  Auditor settled shortly after the deposition.  (2002)

 

$10.5M from auditor: 
After Company settled, developed and drafted many new accounting allegations as well as allegations to add auditor as defendant.  Auditor settled shortly after seeing a draft of the amended complaint, which was never filed. (2003, company settled in 2002.)

 

Broadband communications, $20M: 
Developed and drafted many new accounting allegations, which were sustained.  Company settled later.  (2003)



Retail electronics “superstore,$6.1M: 
Case was moribund.  Upon assignment, asked questions about missing accounting documents; defendants settled shortly thereafter.  Partners who were on the case for years said the questions led directly to an abrupt change in defendants’ settlement posture.  (2003)

 

Technology conglomerate, $100M:
Developed and helped draft new §11 allegations, many new accounting allegations and allegations to add auditor as defendant.  Company settled shortly after seeing a draft of the amended complaint, which was never filed.  (2004)


Internet security, $80M:
Initial accounting claims were dismissed.  Developed and drafted many new accounting allegations, which were sustained.  Later, developed and drafted allegations to add auditor as defendant.  Company settled case before a ruling was issued on auditor's MTD.  (2006)


Programmable logic products, $3.5M: 
Developed and drafted claims of false Sarbanes-Oxley certifications and new accounting allegations, which were both sustained.  First time anywhere that allegations of false Sarbanes-Oxley certifications were sustained.  Company settled shortly thereafter.  (2006)


Mining, $15M: 
Initial accounting claims were dismissed, while unrelated non-disclosure allegations were sustained.  Developed new accounting allegations directly related to non-disclosure claims.  Company settled shortly thereafter.  (2007)

 

Pharmaceuticals, $13.5M legal fee and governance reforms, unknown auditor contribution
Developed and helped draft allegations to add auditor as defendant (derivative) (2008).

Settlement Information
selected settled cases

NOTE: Accounting and auditing inserts described herein were drafted, reviewed and edited under the direction of counsel.

 


 

In re UNITEDHEALTH GROUP INCORPORATED PSLRA LITIGATION
Civ. No. 0.06-cv-01691-JMR-FLN
$925.5M in total recoveries: Tentative settlement agreements for $895 million (July 2008) and $30.5 million (Sept 2008). 

Reviewed documents; attended or helped prepare for depositions of individual defendants, other UNH executives, auditors and members of the restatement team.

[ Download Article ]

 


 

In re VERISIGN CORPORATION SECURITIES LITIGATION
C-02-2270-JW(PVT)
Settled for $80 million (2006).

After initial accounting allegations had been dismissed, helped substantially revise and supplement accounting allegations, which were upheld by Judge Ware.  Attended most accountant, auditor and individual defendant depositions.  Worked closely with testifying accounting expert.  Litigation required tenacious discovery efforts.

[ Download Article ]

 


 

In re HONEYWELL INTERNATIONAL, INC. SECURITIES LITIGATION
Lead Case No. 2:00cv03605(DRD)
Settled for $100 million (2004).

Helped develop substantial body of evidence supporting accounting fraud allegations.  Just before settlement, new discovery requests were made in connection with strong indicia of additional accounting fraud.

[ Download Article ]

Also, assisted plaintiffs' counsel in obtaining oft-cited discovery Order from the Southern District of New York, granting in large part plaintiffs’ Motion to Compel auditor workpapers.  Judge Pauley ordered production of all electronic audit workpapers, in searchable electronic form, and agreed that the auditor's untimely assertions had waived disputed claims of work product protectionSee pp. 3-6 and 12-13.

[ Download Order ]

 


 

In re LATTICE SEMICONDUCTOR CORPORATION SECURITIES LITIGATION
Case No. CV04-1255-AA
Allegedly False Sarbanes-Oxley certifications upheld (2006).

This was the first time that allegations of false Sarbanes-Oxley certifications were upheld.  Had significant role in drafting those allegations.  See Order at pp. 38-43; also see Order at pp. 28-32 (re: accounting allegations; also drafted these, in large part).

[ Download Order ]

 




 

NOTABLE CASES:
SEC Litigation Releases

 

Details about private securities litigation are generally subject to confidentiality agreements.  The links below, however, are to public Litigation Releases, Securities Acts Releases and Accounting and Auditing Enforcement Releases, published by the U.S. Securities and Exchange Commission.  We did not work directly on SEC litigation, but are familiar with details underlying these SEC Releases because we worked on related private securities litigationAs with the private securities cases, defendants settled each of these cases without admitting or denying guilt.   

 


 

In the Matter of PricewaterhouseCoopers LLP
Securities & Exchange Commission
Accounting & Auditing Enforcement Release No. 1787 / May 22, 200
3
A
uditor settled charges by the U.S. Securities & the Exchange Commission for $1M and other sanctions.  (2003)

According to SEC AAER No. 1787:

Working Paper Alteration

*          *          *

"During the period from the end of July through early August 1998, with the knowledge of several PwC partners with firm-wide responsibilities, PwC made revisions to its working papers. Those revisions were not documented. Language in the working papers was revised, added and deleted. Documents were removed from the working papers and discarded, and documents were also added to the working papers. The post-audit revisions were not dated or otherwise distinguished to indicate that they had been made as part of a post-audit review and PwC discarded most of the notes containing a second post-audit reviewer's instructions. In addition, during this period, PwC deleted and discarded most of its 'desk files.'  [footnote omitted] At the time of PwC's conduct, there was no SEC investigation of SmarTalk's accounting or financial disclosures."

*          *          *

Findings and Undertakings

"Based on the foregoing, the Commission finds that PwC, through Hirsch in connection with the audit of SmarTalk's 1997 financial statements, engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice. Specifically, PwC engaged in repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards."

 

[ Download Accounting and Auditing Enforcement Release No 1787 ]

 


 

SEC v. DOLLAR GENERAL CORPORATION, et. al.
Civil Action No. 3:05-0283 (M.D. Tenn.)

Following a 4-year, $143 million restatement, the SEC alleged that:

"Dollar General's misconduct included: (1) intentionally underreporting at least $10 million in import freight expenses for the Company's fiscal year 1999; (2) engaging in an $11 million sham sale of outdated, essentially worthless, Omron cash registers in the Company's fiscal year 2000 fourth quarter; (3) overstating cash accounts; (4) manipulating the Company's reported earnings through the use of a general reserve or "rainy day" account; (5) failing to maintain accurate books and records and filing inaccurate financial reports with the Commission; and (6) failing to maintain adequate internal accounting controls. The complaint further alleges that some of the fraudulent or improper accounting practices were effected by, or known to, former senior executives and accounting personnel, including Turner, Burr Sanderson and Carpenter and were motivated in part by a desire to report earnings that met or exceeded analysts' expectations and to maintain employee bonuses
."

[ Download Accounting and Auditing Enforcement Release No 2226 ]

 


 

SEC v. DOLLAR GENERAL CORPORATION, et. al., including BRIAN M. BURR
Civil Action No. 3:05-0283 (M.D. Tenn.)

The SEC alleged that rather than restating interim quarters, or recording prior period expenses in the 4th Quarter, Dollar General's CFO deferred expenses into the following year, allowing Dollar General to meet the employee bonus target and analyst expectations.  While possessing this knowledge, the CFO allegedly engaged in insider trading.

[ Download Accounting and Auditing Enforcement Release No 2411 ]

 


 

In the Matter of Daisytek International Corporation
Admin. Proc. File No. 3-11799

The SEC alleged that Daisytek, a Fortune 1000 company with annual sales of $1 billion+, improperly managed its earnings from 2001 until it filed for bankruptcy in 2003.  According to the SEC, "Daisytek regularly announced earnings forecasts it could not meet," leading Daisytek to:

"...[i]mplement a practice known as 'booking to budget.'  The practice involved, on a monthly basis, booking fictitious 'budgeted' revenue and expense amounts, based on the earnings forecasts and budgeted expenses, instead of actual revenue and expense amounts." 

The SEC also alleged that Daisytek made large uneccessary purchases of slow moving products and then improperly recorded vendor rebates, market development and co-op funds.  According to the SEC, Daisytek also (i) recorded receivables without adequate documention, (ii) failed to timely write off uncollectible receivables, (iii) failed to record adequate inventory reserves, (iv) had deficient internal controls, (v) made inadequate and misleading disclosures and (vi) offered and sold securities to its employees while its earnings were inflated.  This caused Daisytek to violate the Securities Act and numerous sections of the Exchange Act, the SEC said.

[ Download Accounting and Auditing Enforcement Release No 2172 ]

 


 

In the Matter of TALX CORPORATION
Admin. Proc. File No. 3-11845

The SEC alleged that TALX inflated its 2001 pretax income by 122% when it (i) used a fraudulent "bill and hold" scheme that had no business purpose; (ii) fraudulently recognized service revenue; (iii) fraudulently capitalized its payment to settle a patent infringement claim; (iv) fraudulently recorded 2001 bonus expenses in 2002; and (v) inflated revenue by recording on the percentage-of-completion basis instead of the straight-line basis. According to the SEC, TALX used its inflated financial statements in an improper offering of stock, and violated books and records requirements under the Exchange Act.

[ Download Accounting and Auditing Enforcement Release No 2202 ]

 


 

SEC v. William W. Canfield
Civil Action No. 4:05-CV-369 (SNL), U.S. District Court for the Eastern District of Missouri

The SEC alleged that TALX's CEO, William Canfield, sold $6 million of his own stock in the offering (above), when he knew or should have known that TALX's financial statements were inflated.

[ Download Accounting and Auditing Enforcement Release No 2201 ]

 


 

SEC v. HYBRID NETWORKS INC., et. al.
U.S. District Court for the Northern District of California, San Jose Division
Civil Action No.: C-00-20718-PVT

The SEC alleged that in connection with its Initial Public Offering, Hybrid fraudulently inflated its 1997 revenue – by 249%.  The ensuing restatement reduced Hybrid's revenue from $14.3 million (reported) to $4.1 million (restated).  Before it was delisted by NASDAQ, Hybrid's stock fell from a post-IPO high of $24 to approximately $2 (92%).

[ Download Accounting and Auditing Enforcement Release No 1282 ]

 


 

Home | About | Services | Cases | References | Resources | Contact

[ DISCLAIMER ]

 


FAILSAFE is an acronym for Forensic Accounting, Investigation, Litigation Support and Fraud Examination.


© Copyright 2008-2013 - FAILSAFE CPA, PC


Web Design by: San Diego Web Design