We often hear about accounting fraud when a big case hits the news. For example:
- Xerox falsified its financial records for five years, inflating its earnings by $1.5 billion;
- Lehman Brothers failed to disclose an accounting loophole that reported short-term loans as sales; and
- Haliburton improperly overbooked cost overruns.
When the SEC announces large accounting fraud cases, we take notice. After all, many of these fraud cases involve companies with household names. The amounts in cases that hit the news often run into the billions. However, even though many accounting fraud cases aren’t as notorious, fraud can still be just as damaging to shareholders in smaller cases. Sound financial practices and accurate accounting is a foundation of our securities markets. Companies frequently cook their books to make their companies more attractive to investors and driving the stock price up. However, absent a whistleblower reporting false numbers, this type of fraud can be very difficult to detect.
In some cases, companies inflate the valuations of their assets or hedge funds inflate the value of their investments. This can lead to exaggerated returns, excessive fees to the fund managers and, ultimately, significant losses for investors when assets are ultimately marked down. All of these actions can lead to a potential violation of the federal securities laws.
What Is Accounting Fraud?
Some of the most common forms of financial fraud involve a company manipulating its financial statements to make the company look financially healthier than it is. Accounting fraud often involves falsifying financial statements by:
- Overstating revenue:Overstating earnings or revenue can inflate a company’s profits, misleading investors.
- Failing to record expenses:When a company fails to record or understates expenses, it can give a false impression of company financial health.
- Misstating assets and liabilities:Misstating assets and liabilities often happens with accounting fraud. When a company overstates its current assets or understates its current liabilities, it misrepresents a company’s short-term liquidity.
Accounting fraud misleads the shareholders and investors in a company, often leading to investor financial losses. While financial statement fraud is not the most common type, accounting for only about 10% of financial fraud cases, it can be one of the costliest. As a result, regulators take accounting fraud seriously.
Real Life Accounting Fraud
Enron may be one of the most famous cases of accounting fraud. The company declared bankruptcy after trying to hide billions of dollars in bad debt with a series of off-balance-sheet “special purpose entities.” When the scandal came to light, investors lost more than $74 billion, and the company, once one of the largest in the U.S., failed. The CEO and a former CEO of Enron were sentenced to jail time for the fiasco.
Hire An Experienced SEC Whistleblower Lawyer
If you are considering whether you should become a whistleblower in a financial fraud case, you need to consult with an experienced attorney. A lawyer well versed in handling whistleblower cases can advise you of your best course of action. Our attorneys, can help investigate and document your claims, providing guidance and protecting your rights. Call us today at (800) 975-4345, or email us to set up a free consultation.