On March 3, 2017, the SEC announced that homebuilding company Desarrolladora Homex S.A.B. de C.V. (Homex) has agreed to settle charges that it used accounting fraud to overstate its revenues by approximately $3.3 billion during a three-year period. According to the SEC’s complaint, the company reported fake sales of more than 100,000 homes, which increased its revenue by 355 percent.
To uncover the accounting scheme, the SEC used satellite imagery proving that Homex reported revenue for unbuilt homes. For example, Homex recorded revenues allegedly derived from a project site in the Mexican state of Guanajuato. But satellite images of the project site showed that a vast majority of the purportedly sold homes remained unbuilt.
Disclosing this type of accounting fraud to the SEC can lead to a whistleblower award under the Dodd-Frank SEC Whistleblower Program. Call us today for a free confidential consultation about your corporate whistleblower case. We can be reached at 202-262-8959 or by clicking here.
Under the SEC Whistleblower Program, whistleblowers may receive an award for providing the SEC with original information about violations of federal securities laws (including accounting fraud) that leads the SEC to bring a successful enforcement action that results in monetary sanctions exceeding $1 million. Whistleblowers are eligible to receive between 10% and 30% of the monetary sanctions collected
Importantly, even auditors and accountants may be eligible to receive rewards under the program. Leading whistleblower firm Zuckerman Law routinely represents accountants and auditors in whistleblower retaliation and whistleblower reward claims.
The largest award to date was issued in March 2018, when the SEC announced it would give nearly $50 million to two whistleblowers who provided the SEC with key original information that led to a successful enforcement action. For information about other SEC whistleblower awards, see our recent column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
We represent whistleblowers worldwide. Contact us today for a free and confidential case review at (202) 262-8959. Click here to read reviews and testimonials from former clients.
To learn more about the SEC Whistleblower Program, download Zuckerman Law’s eBook: SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award:
On February 9, 2016, the SEC announced that Monsanto agreed to pay an $80 million penalty for insufficient internal accounting controls. According to the SEC’s order, the company failed to properly account for millions of dollars in rebates offered to retailers and distributors of Roundup after generic competition had undercut its prices and caused the company to lose significant share in the market. Monsanto booked substantial amounts of revenue from sales incentivized by the rebate program, but failed to recognize all the related program costs at the same time. A whistleblower was rewarded more than $22 million for disclosing this fraud to the SEC.
On April 27, 2015, the SEC obtained a $131 million judgment against Symbol Technologies Inc. for fraudulent revenue-recognition practices, including quarter-end “stuffing” of Symbol’s distribution channel to help meet revenue and earnings targets imposed by its CEO.
On June 5, 2015, Computer Sciences Corporation agreed to pay $190 million to settle charges that the company engaged in a wide-range accounting-and-disclosure fraud that materially overstated its earnings and concealed from investors significant problems with its largest contract. According to the SEC’s order, the company’s former Finance Director prepared a fraudulent accounting model in which he included made-up assumptions to avoid reporting a negative hit to the company’s earnings. The company also overstated its earnings by using “cookie jar” reserves and by failing to record expenses as required.
On September 27, 2016, Weatherford International agreed to pay a $140 million penalty to settle charges that it inflated its earnings by using deceptive income-tax accounting. According to the SEC’s order, Weatherford fraudulently lowered its year-end provision for income taxes each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations. The company lowered its year-end provision for income taxes by making numerous post-closing adjustments to fill gaps and meet its previously disclosed effective tax rate.
On September 19, 2016, the SEC announced that public accounting firm Ernst & Young had agreed to pay $9.3 million to settle charges that two of the firm’s audit partners had “inappropriately close personal relationships” with their clients and thereby violated independence rules designed to ensure that firms maintain their objectivity and impartiality during audits. In one of the SEC’s orders, an EY audit partner was having a romantic relationship with a client’s Chief Accounting Officer. The main EY audit partner on the account noticed signs of this romantic relationship but failed to perform a reasonable inquiry. In the SEC’s second order, an audit partner was accused of excessive socializing with a client’s Chief Financial Officer. This socializing included attending sporting events, taking vacations, and incurring other significant entertainment expenses that did not serve a proper a business purpose.
On August 6, 2015, Miller Energy Resources Inc. was charged with inflating values of oil and gas properties, resulting in misstated financial statements. According to the SEC’s order, the company overstated the properties’ value by more than $400 million as a result of the CFO’s relying on a reserve report that did not reflect fair value of the assets. In addition, the CFO double-counted $110 million of fixed assets already included in the reserve report.
The SEC recently issued new guidance on the agency’s interpretation of the rules and regulations on the use of non-GAAP financial measures. In a previous enforcement action, the SEC fined a company more than $1 million for misleading non-GAAP financial measures.
For information about misleading non-GAAP financial statements and SEC whistleblower awards, see our recent article in AccountingToday: Deceptive non-GAAP financials will lead to future SEC whistleblower awards.
For more information about whistleblower rewards and bounties, contact the SEC whistleblower lawyers at Zuckerman Law at 202-262-8959. To learn more about SEC whistleblower awards for reporting accounting fraud, read out article titled “Auditors’ and accountants’ guide to SEC whistleblower awards.”
We have represented CEOs, CFOs, in-house counsel, partners at audit firms and other senior professionals in high-stakes whistleblower matters. Click here to read reviews and testimonials from former clients. Drawing on our substantial experience representing corporate whistleblowers, we have published a free guide to SOX titled Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.
Call us today for a free preliminary consultation about your corporate whistleblower case. We can be reached at 202-262-8959 or by clicking here.
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