How Common is Accounting Fraud?

Accounting irregularities have come up a fair amount recently, from the increase in SEC investigations in this area announced at the beginning of the year to the SEC fine against CSC for $190 million in June. With a wave of new stories hitting the media, it doesn’t seem like this area of securities law is going to slow down anytime soon. Here are the latest areas related to accounting fraud to be getting coverage:

MBTA

At the end of June, Harry Markopolos, the whistleblower that famously attempted to notify the U.S. Government of the Bernie Madoff ponzi scheme, warned the SEC about accounting and investment reporting issues with the MBTA pension fund. After a six month investigation, Markopolos told the SEC and other agencies that the pension fund may be overstating its books by as much as $470 million out of the $1.6 billion pension.

Among the issues noted in their study of publicly released information by the pension fund:

  • They discovered statistically improbably events, such as a return on investment two years in a row of 17.7 percent.
  • They used a different accounting approach three years in a row to calculate asset valuation.

The Massachusetts Bay Transportation Authority operates the leading share of the bus, subway, commuter rail and ferry system in greater Boston. The pension plan is funded partly by taxpayers and covers the workers and retired employees of the transit system.

Interestingly, Markopolos did not submit the tip to the SEC whistleblower program for a reward.

CalPERS

A former SEC attorney is attempting to crowdsource an investigation into CalPERS. The California Public Employees’ Retirement System is America’s largest public pension plan with over $300 billion in assets.

Earlier this year, CalPERS told its Investment Committee that it couldn’t track how much money it was spending on private equity firms. Given that the SEC has been investigating advisers and the private equity industry for problems with their fee disclosures and hidden fees, we wouldn’t be surprised if a whistleblower emerges with information about how investment banks or private equity firms were fleecing public pension funds and is able to capture a reward in the future.

Toshiba

This Japanese corporation known in America for its personal computers is expected to have to restate profits lower by more than $1 billion due to accounting irregularities. The amount is nearly double the earlier estimates as it has discovered overstated profits in its computer and semiconductor business in addition to the earlier reported problems related to its contract with Tokyo Electric Power for smart grid technology. The company has yet to file its latest annual report due to the need for the accounting restatement.

Will accounting fraud be the next big area for the government to pursue once it wraps up the smaller mortgage fraud cases?  We’ll just have to wait to find out.

If you have evidence of accounting fraud at a publicly traded company, contact one of our SEC whistleblower attorneys to discuss reporting it to the U.S. Government. An attorney can be reached by our contact form or calling 1-800-590-4116.

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