At the beginning of this year, the Wall Street Journal wrote an article about how the Securities and Exchange Commission was investigating a surge of cases involving accounting fraud. It looks like we might be seeing the outcomes of some of those cases soon, as suggested by the Bankrate settlement today. Bankrate, best known for its online comparison tool for mortgages and other types of bank lending, agreed to settle charges of accounting fraud brought by the SEC for $15 million.
The allegations by the SEC involved a scheme to meet analyst estimates by inflating revenue and underbooking expenses in the second quarter of 2012. The insurance and credit card divisions were asked to book additional, unjustified revenue. When the credit card division balked at the full amount, additional revenue was booked to two mortgage clients. Bankrate also had an expense account to manipulate financial results for at least a year.
Bankrate is by no means the largest company to have announced problems with its books right now. Toshiba, although a Japanese corporation, is also undergoing scrutiny by investors around the world. In fact, it has been the prime example since May, when the company withdrew its net profit estimate of $1 billion for the last fiscal year, ultimately posting a net loss of $318 million. Toshiba announced revised earnings statements for seven years today, noting that it overstated revenue by approximately $1.9 billion and profits $1.3 billion over the time period at issue.
The Japanese conglomerate’s accounting issues reportedly stemmed from divisions within the company fudging numbers in order to meet the high quarterly targets set by Toshiba’s management. There has been speculation by at least one commentator that if the practice is going on at the company, which had an excellent reputation, then it may also be going on at other companies in Japan. Some of those may be listed on a U.S. stock exchange and subject to a possible fine by the SEC for providing materially misleading information to investors.