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 protection. See 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 litigation. As 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, 2003
Auditor 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."
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."
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.
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.
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.
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.
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%).
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