From The SEC & The Post: "Crackdown on “Cooking the Books”...
The SEC--"Crackdown on “Cooking the Books”
sec.gov
The Post--"U.S. Files Charges, Lawsuit In Accounting Fraud Scheme"
washingtonpost.com
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Thanks as always, Sandy ;-). di
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>>>U.S. Files Charges, Lawsuit In Accounting Fraud Scheme
By Sandra Sugawara
Washington Post Staff Writer
Friday , September 29, 2000 ; E04
After Deloitte & Touche uncovered accounting problems at McKesson HBOC Inc., the nation's largest pharmaceutical drug wholesaler, in April 1999, the San Francisco-based company had to restate its revenue, wiping out more than $9 billion of its market value.
Yesterday, two men who were executives of HBOC--a company acquired by McKesson early last year to form the merged company--were indicted on charges that they schemed to falsely overstate HBOC's earnings and revenue. Their actions created a false impression that the company was having a continuous run of financial success, both before and after it was acquired by McKesson, according to the criminal and civil charges filed.
"This is one of the largest financial reporting frauds ever, both in terms of the scope of the scheme and the impact on innocent investors," said Helane L. Morrison, administrator of the San Francisco office of the Securities and Exchange Commission, which brought the civil charges.
Robert Mueller, U.S. attorney for the northern district of California, announced the 17-count indictment, charging Albert J. Bergonzi, 50, of Alpharetta, Ga., and Jay P. Gilbertson, 40, of Duluth, Ga., with securities fraud, which carries a maximum penalty of 10 years in prison and a potential $1 million in fines.
The SEC sued Bergonzi, HBOC's former president, and Gilbertson, HBOC's former chief financial officer, as well as Dominick A. DeRosa, former HBOC vice president, charging them with financial reporting fraud.
DeRosa agreed to settle, without admitting or denying the SEC charges, by paying $411,528 and agreeing to be barred for five years from serving as an officer or director of a public company. DeRosa's attorney said he had no comment.
Gilbertson's attorney, Robert Plotkin of Washington, said, "Mr. Gilbertson denies the charges and intends to aggressively fight them." Bergonzi's attorney, Joseph Russoniello of San Francisco, said, "I expect him to plead not guilty."
McKesson HBOC spokesman Larry Kurtz said, "We would just like to emphasize that we have cooperated fully with the SEC and U.S. attorney's office, and we will continue to do so until the issues are resolved."
Federal authorities have said they are alarmed by anecdotal evidence that more companies may be cooking the books to meet analysts' expectations. Thus, they have focused increased attention on such alleged frauds. Six financial reporting fraud cases were announced on Wednesday.
The SEC is also trying to force accounting firms to cut back on the lucrative consulting work that some do for their audit clients, arguing that it could threaten audit quality. Accounting firms deny these assertions, but SEC Chairman Arthur Levitt Jr., in defending the SEC's effort, yesterday offered to privately brief a Senate subcommittee on ongoing investigations of financial accounting misdeeds.
McKesson's Kurtz said that the accounting problem at his company was uncovered by the outside auditor for the merged company. Arthur Andersen LLP was HBOC's outside auditor.
According to the indictment, between December 1997 and April 27, 1999, Bergonzi, Gilbertson and others allegedly hid the fact that some software contracts HBOC had counted as revenue could still be canceled or renegotiated. They also fraudulently backdated contracts so they fell in the previous quarter, made phony journal entries to understate expenses and swapped products with other companies to generate fictitious sales revenue, the charges said.
The indictment alleges that, despite recording millions of dollars in fraudulent software sales, HBOC still failed to meet its quarterly goals from March 31 through Sept. 30, 1998. So Gilbertson directed that more allegedly false entries be made to the company's books to make up the shortfall.
Gilbertson and DeRosa left HBOC in the fall of 1998, before the January 1999 merger with McKesson. Bergonzi stayed on, becoming executive vice president of McKesson HBOC. After the quarter ending March 31, 1999, Deloitte & Touche started checking the books, and the accounting problems became apparent.
When the company announced its discovery on April 28, 1999, McKesson HBOC's stock price dropped by more than 40 percent, from $65 to $34 a share. The company was soon inundated with shareholder lawsuits.
The audit committee of the board of directors retained Skadden, Arps, Slate, Meagher & Flom and PricewaterhouseCoopers to perform forensic accounting to try to reconstruct what happened, according to Kurtz.
During the course of the investigation, they presented their early findings to the board, which terminated a number of employees, including Bergonzi, who left in June, Kurtz said.
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