Background Legato Systems, Inc. was a software company created in 1988 that provided data storage databases and services as an intermediary for other firms within the industry. Legato was listed on the NASDAQ exchange and was audited by Pricewaterhouse Coopers, LLC. In 2003, Legato was acquired and merged into EMC Corp., another company specializing in computer hardware and software, who later merged with Dell Technologies, Inc. in 2016. The executives allegedly responsible for the fraud were Executive Vice President of Worldwide Sales David Malmstedt and Vice President of North American Sales Mark Huetteman. The two executives had worked together for Legato for less than a year before the suspicious activity began, and individually had less than three years of experience working for Legato. When hired, both executives were offered stock incentives and bonuses for meeting sales quotas each quarter.
Fraud Risk Fraud risks associated with Legato were rooted in being listed on a stock
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Mark Huetteman settled the charges in July of 2003, in which he neither admitted nor denied the SEC’s allegations. Huetteman paid $160,000 in disgorgement and $40,000 in penalties. David Malmstedt pleaded not guilty to all charges, and the jury came to the verdict of not guilty in June 2004. Malmstedt held the position that his subordinate, Huetteman, had operated the fraud outside of his knowledge and was therefore not responsible for the fraudulent activities. Legato Systems also suffered reparations as a result of the lawsuit. Legato paid $90 million in settlements to shareholders. At the time of the settlements, Legato had already been purchased by EMC, but Legato was still required to restate their financial statements since 1999.
Armanino LLP is the largest independent accounting and business consulting firm based in California with revenues of $155 million in 2015. They offer their services to profit and non-profit organizations. Armanino was founded in 1953, and it has nearly 600 employees. The company extended its global services to more than 100 countries through its membership in Moore Stephens International Limited - one of the world’s major accounting and consulting membership organizations. Armanino’s goal is to provide assistance in audit tax, consulting, and technology solutions to companies worldwide. The firm has won awards such as “Best of the Best” in 2015 from Inside Public Accounting,
Overview of the Case: The Securities and Exchange Commission claims Mark D. Begelman misused proprietary information regarding the merger of Bluegreen Corporation with BFC Financial Corporation. Mr. Begelman allegedly learned of the acquisition through a network of professional connections known as the World Presidents’ Organization (Maglich). Members of this organization freely share non-public business information with other members in confidence; however, Mr. Begelman allegedly did not abide by the organization’s mandate of secrecy and leveraged private information into a lucrative security transaction. As stated in the summary of the case by the SEC, “Mark D. Begelman, a member of the World Presidents’ Organization (“WPO”), abused his relationship of trust and confidence and misappropriated material, non-public information he obtained from a fellow WPO member about the pending merger. It was the specific written policy of the WPO that matters of a confidential nature were to be kept confidential (Securities and Exchange Commission). Mr. Begelman maintained a relationship with a fellow WPO member, an insider with BFC Financial, who provided access to non-public information regarding the merger. Mr. Begelman used this information to purchase 25,000 shares of Bluegreen stock prior to the announcement of the acquisition. After the merger was made official and disclosed to the street, Mr. Begelman sold his stake for a net gain of $14,949. He maintained ownership of Bluegreen securities for fifteen days (Gehrke-White).
March 20, 2003, Richard Scrushy, the former chief executive officer of HeathSouth Corporation, was charged by the Securities and Exchang...
Dennis Kozlowski was living his dream as a multimillionaire and if anyone got in the way of his dream to create his empire then they would be stepped on like a bug. This is what happened to Jeanne Terrile at Merrill Lynch. Terrile smelled something funny coming from Tyco and when she acknowledged that something was wrong, she was shut down quickly. Nobody knows for sure if Kozlowski paid off the CEO of Merrill Lynch, David Komansky, or not and nobody knows what they talked about. The fact is that Jeanne Terrile was replaced and the stock recommendation for Tyco soon changed after their talk. Terrile decided to do what she thought was right and make sure to notify people of what she thought of the company. Because of Terrile’s ethical decision
Nathan Mueller’s employer, ReliaStar was acquired by the large insurance company ING in 2000. Mueller had a deep understanding of accounting systems and was in charge of transitioning his old employer to the new ERP system. Mueller learned “all aspects of the ERP system including financial reporting, journal entries, and most importantly, checks and wire payment processing” (“Lessons Learned,” 2014). Mueller was an accounting manager of the reinsurance division at one of ING’s offices. He stole almost $8.5 million in a little over four years. Mueller’s department at ING was the reinsurance division, which gave him the ability to approve company checks of up to $250,000. He embezzled this significant amount of money from his employer by requesting
Two individual employees wanted to complete their assignment for their company. But, did their strategy go about accuracy? Karel Svoboda works for Rogue Bank. Svoboda is a credit officer who needed Alena Robles, independent accountant, assists to evaluate and approved his employer’s extensions of credit to clients. In order to complete the task, Svoboda needed to access the nonpublic information about the clients’ personal information related to the company such as their profits and performances. Instead of appropriately following the company policy, Svoboda and Robles created a plan to utilize this data to exchange securities. According to their plan, Robles exchanged the securities of more than twenty unique organizations and benefitted by
Ulinski, Michael. "AN ANALYSIS OF SMALL COMPANY FRAUDS AND." American Society of Behavioral Society. Dept of Business, Pace University. 05 Feb. 2008.
...markets. This was accomplished by focusing on design and engineering. However, without strong sales, marketing and production resources, the company will not be able to secure these alternative markets. Since the product is nearly completed, Ecton should stay with their original plan. This would allow Ecton to take advantage of their position as the first to market when negotiating with a potential buyer. By selling the business now, Ecton could avoid the necessity of giving up additional equity to secure additional funding. This would give the original investors (which include the founders) the greatest return on their investment. Michael Cannon has already developed an exit strategy in his Phase III plan. This plan should be followed through. Since Ecton is close to perfecting their product the time is right to make the best deal possible for an acquisition.
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
The circumstance for the exposure to the fraud was Raju’s acquisition attempt. Both of the companies were owned by his two sons, with the companies valuing at US$1.3 billion and US$300 million. There was immediate resistance from investors towards this deal. Although Satyam broke off the deal, they couldn’t undue the damage.
would let them in on the corruption that when on. The firm had a tight control
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
Sandberg, J., Solomon, D., & Blumenstein, R. (2002, June 27). Accounting Spot-Check Unearthed A Scandal in WorldCom's Books. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB102512901721030520.html
They were committing fraud by creative accounting, acting illegally when using insider trading and shredding their documents relevant to the investigation. Next, consider the stakeholders. Anyone who owns stock in the company would suffer, along with every employee. Under the values bullet we can assume that they have none. Greed and power got the better of every one of them.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.