Auditors have a duty to correct a false audit report

Standard

This information was posted Monday on Blawgletter:

The Second Circuit today held an auditor potentially liable for federal [tag]securities fraud[/tag] if it doesn’t correct a false or misleading report on its [tag]audit[/tag]. The court said:

The precise issue on appeal is whether an auditor may incur primary liability under § 10(b) and Rule 10b-5 when the auditor provides a certified opinion that is false or misleading when issued, subsequently learns or was reckless in not learning that the earlier statement was false or misleading, knows or should know that potential investors are relying on the opinion, yet fails to take reasonable steps to correct or withdraw its opinion and/or the underlying financial statements. We hold that under such circumstances, an auditor becomes primarily liable for securities fraud, assuming all the other elements of a securities fraud claim are present. Since the complaint pleads precisely this theory of liability, we vacate the District Court’s dismissal and remand for further proceedings consistent with this opinion.

Overton v. Todman & Co., CPAs, P.C., No. 06-2496-cv (2d Cir. Feb. 26, 2007).

I think it is safe to say that this decision will definitely have an impact on the future of independent audits.

Restraining Order Issued Against Michael McGee (Jackson)

Standard

Milwaukee alderman Michael McGee (Jackson) has been issued a restraining order for harassing Leon Todd, a man involved in the effort to recall McGee/Jackson and to expose him for the thug and scofflaw that he is. McGee/Jackson is notorious for his criminal behavior, and these threats come as no surprise.

The restraining order is currently temporary, and there will be a hearing on March 13 to determine if it should be made permanent. In December, McGee/Jackson made a statement on his father’s radio show that Todd should be “hung” for his “betrayal of the community.”

Todd has also allegedly receiving harassing phone calls, some with death threats. The restraining order prohibits McGee/Jackson from contacting Todd in any way, or from having any third parties contact him on McGee/Jackson’s behalf. Not that something like this would ever stop McGee/Jackson.

Online steroid ring busted

Standard

Two facilities in Florida were raided in a steroid bust, and four people were arrested as a part of it. The raids happened at two Signature Pharmacy stores, and the company officials arrested were charged with criminal diversion of prescription medications and prescriptions, criminal sale of a controlled substance and insurance fraud.

The four officials who are considered the “producers” of the drugs included Stan and Naomi Loomis (owners of Signature Pharmacy in downtown Orlando), Stan’s brother Mike Loomis, and Kirk Calvert (Signature’s marketing director). Also arrested were three “distributors” from a Texas company called Cellular Nucleonic Advantage. More charges are expected.

The steroid investigation was based out of New York. The investigators found that testosterone and “performance enhancing” drugs were being fraudulently prescribed over the internet to professional althletes, college athletes, high school coaches, and a couple of bodybuilders.

While no customer names were given by the investigators, a secret source revealed that Angels outfielder Garry Matthews Jr. was one of them. The investigators have spoken with Richard Rydze, a team doctor for the Pittsburgh Steelers who allegedly used a personal credit card to purchase $150,000 in testosterone and human growth hormone in 2006.

McAfee’s former general counsel indicted

Standard

Kent Roberts, the former general counsel at McAfee Inc. (fka Network Associates) was charged with seven criminal counts of fraud, nine months after being fired for improper handling of stock options. The charges include manipulating the value of his own stock options to increase his profits and then falsifying records to cover up this misconduct. Roberts faces up to 20 years in prison and as much as a $5 million fine.

Roberts was allegedly part of an ethics committee formed by McAfee in 2002, related to some of the prior accounting problems at the company.

At one point, Roberts was granted 20,000 stock options which carried an exercise price of $29.62. In late 2000, Roberts allegedly altered the exercise price to $19.75. In a 2002 internal investigation, Roberts allegedly recommended that the controller who helped in this alteration be removed from the finance department. It is further alleged that in the same year, Roberts helped to backdate 420,000 stock options owned by George Samenuk, the former chairman and CEO.

It is estimated that McAfee will have to incur a non-cash charge of about $100 million to $150 million to correct this problem.

Starting a Business — And Not a Legal Battle

Standard

How to quit your job, compete with your old boss, and not get sued

Entrepreneur.com
By Geoff Williams

Some bridges are merely burned. Others are scorched.

Elaine Browne and her business partners, Federico Lupo and Dario Arias, knew the latter applied to them shortly after opening their New York City hair salon, Trillium. “We found out we were being sued during our second week when the affidavit came,” says Browne. “We were shocked.”

The reason for the lawsuit? Browne, Lupo and Arias, sensitive types who will only cop to being in their 30s and 40s, worked together for years at a hair salon known as the John Sahag Workshop before collectively quitting and creating a new company–effectively competing with their former salon.

It’s a common gripe among many business owners. You hire employees, teach them everything you know and groom them for a long future at your business. Then one day, they’re out the door, starting their own business with an indirect mission: to compete with you. Continue reading

Blog fraud?

Standard

Yes, you read that correctly. There’s fraud happening all over the internet, and blogs are no different. Recently I became aware of the fact that a blog post was published entitled “Great Mortgage Fraud Info THANK YOU Tracy Coenen.” I thought that was odd, as I don’t write about mortgage fraud.

I went and took a peek and verified that I’ve never seen this information before, much less written about it. I assumed that the blog was one of those slimy little types that plagiarizes posts from other blogs. Usually the motive is Google ad revenue (the blogs are geared specifically toward getting search engine traffic there and hoping people will click on your ads).

Then the article started popping up on other blogs with the same title, and I just knew that it was the work of more slimy blog stealer types. But what could I do? They didn’t steal my words, just my name. I assumed they were trying to get some of the “fraud” Google mojo associated with my name.

And then this blog post showed up…. “They say that the best form of flattery is being copied. However, I wonder if you might call it flattery or Plagiarism?”

Gena Riede is the real author of the mortgage fraud article. She exchanged several emails with the owner of the original blog (Mortgage Fraud Blog) who posted Gena’s article (word for word, in its entirety) with my name. Their response was priceless: “Thank you very much for contacting us regarding your article. My sincerest apologies as we obtain information from countless sources and are unable to verify the origins of them all. Please refer to our blog for our corrections.”

So the Mortgage Fraud Blog is apparently copying lots of articles from lots of different sources, without any permission, and without taking care to make sure that they’re actually citing the right sources. How low can you go?

Sanyo being investigated for possible accounting fraud

Standard

Japanese authorities are looking into the accounting practices of Sanyo Electric Co. The Securities and Exchange Surveillance Committee is investigating the company for allegedly misrepresenting losses in its results for the fiscal year ended March 2004. Sanyo had ?190 billion ($1.56 billion) in losses to book, but only booked ?50 billion of losses for that year. The unbooked losses would have left Sanyo with a net loss for the year.

This is having an impact on investors, particularly Goldman Sachs, which invested over $1 billion and was reportedly planning on selling soon at a big profit. The stock was down 21% in Tokyo. The company also faces possible delisting on the stock exchange.

 

Milwaukee Alderman Michael McGee Jackson Becomes Delusional

Standard

Since he can’t cry “racism” regarding his opponent in the upcoming recall election, Michael McGee Jackson is now resorting to accusing mythical figures of wrongdoing. The current alderman, with a history of very public acts of criminal behavior, is upset that the recall initiated by ViAnna Jordan is going forward. However, he has dropped his challenge of the recall itself. Continue reading

Prison inmates getting unemployment benefits

Standard

Two Wisconsin prisoners have been getting unemployment benefits, to the tune of $2,697 last year. State auditors were comparing Department of Corrections prisoner data to unemployment data, to see if there was any overlap. Prisoners are not eligible to collect unemployment benefits because they do not meet the “available for employment” test.

According to the Milwaukee Journal Sentinel, Department of Workforce Development spokesperson Rose Lynch said that:

…the agency is developing a “cross-match” system to compare records on those receiving unemployment benefits with inmates.

Right hand, may I introduce you to left hand….

Diamond Jim on Taxes: Increase, Increase, Increase

Standard

There was never a tax increase that Wisconsin Governor Jim Doyle didn’t like! Here’s the list from his latest budget:

  • Tax on a pack of cigarettes: from $1.25 to $2.02
  • Vehicle registration fees: from $55 to $75
  • Driver’s license fees: from $24 to $34
  • Property taxes: they can go up as much as 4%, which is double the two-year cap that expired in January. This would mean a $75 increase on a home with taxes of $2,730 last year.
  • New hospital tax: 1% of gross revenue
  • Nursing home bed tax: from $75 a month per bed to $125 a month
  • Real estate transfer tax: from $3 to $5 per $1,000 of sale price. This would make the transfer tax on a $166,000 home sale go from $498 to $830.

In addition, Jimmy is proposing taking $175 million from the state’s malpractice fund and wasting that too! Oh, and did I mention that when running for governor in 2002, Doyle said he’d cut 10,000 state jobs? He’s barely made a dent in that so far with less than 3,000 jobs cut, and his current budget adds 791 employees.