Accounting fraud misleads investors and distorts financial markets. It’s not always easy to identify, which is why the Securities and Exchange Commission (SEC) offers potentially significant rewards for whistleblowers who report it. Whistleblowers also enjoy legal protections against retaliation by their employers.
To participate in the accounting fraud whistleblower program, you need to make a compelling case. The better your claim, the more likely it is that you will receive the maximum reward under law. Newman & Shapiro represents whistleblowers, and if you have evidence of accounting fraud, we want to hear from you.
Understanding The Many Forms Of Accounting Fraud
Accounting fraud takes many forms because there are so many reasons companies choose to engage in it. Covering up losses, artificially inflating earnings, and avoiding scrutiny by the SEC are common temptations, and all too many companies give in to them. Investors, lenders, and many others pay the price when unscrupulous executives, accountants, and employees cheat the system.
Common examples of accounting fraud include:
- Overstating revenue. Companies often paper over losses, or make themselves look more profitable than they actually are, by engaging in accounting fraud. Making misleading financial statements is one way to artificially inflate the stock price and perceived value of the company. Some companies make sales to related entities or record sales before they’ve been finalized. One way to fraudulently prop up revenue is to send retailers more product than they can sell, a practice known as channel stuffing.
- Understating expenses. The more expenses a company has, the lower its net income. To make net income appear higher, therefore, companies sometimes keep certain expenses “off the books.” Evidence of understated expenses is typically found on a company’s income statement.
- Misrepresenting assets and liabilities. Overstating assets, or understating liabilities, is a form of accounting fraud. Companies often do this to misrepresent their liquidity. If potential investors believe that assets are high and/or liabilities are low, they will think the company has enough liquidity to cover any losses. This dupes investors into having more confidence in the company than it deserves.
- Slush fund/cookie jar accounting. Companies obviously don’t like to report lower than expected earnings, and they have devised many ways to work around this. One practice involves setting earnings aside into reserves – called a slush fund or cookie jar – which can be used at a later date to artificially inflate earnings reports. Investors only see steady, strong growth instead of fluctuations or losses, and are thereby misled.
- Inadequate internal accounting controls. Companies are expected to adopt internal policies and procedures to ensure that their accounting activities are conducted accurately. Those that fail to utilize such policies are at risk of producing fraudulent and inaccurate financial reports.
- Manipulating revenues and expenses reporting. Revenues earned, and expenses made, should be recorded during the reporting period in which they occur. Fraudulent companies will sometimes record revenues early and expenses late, which distort the financial picture they present to investors and others.
- Lack of auditor independence. Auditors who review the records of companies should be independent of those companies. Independence ensures the auditor correctly and objectively performs his or her job. Some companies threaten, harass, intimidate, or bribe auditors in order to produce favorable reports.
- GAAP violations. Generally Accepted Accounting Principles (GAAP) are rules that govern the measurement, processing, and communication of financial information. Non-GAAP measures may be adopted to misrepresent the company’s finances through accounting fraud.
I Have Evidence Of Accounting Fraud – Can I Be A Whistleblower?
If you have evidence of a company or individual’s accounting fraud, you could be eligible to participate in the SEC whistleblower program. Bringing a whistleblower claim is complex, and not everyone who knows of the wrongdoing can do so. You must satisfy the following conditions:
- Have original, non-public information about accounting fraud. The SEC prioritizes those who bring whistleblower claims first. The evidence you have must not already be known by the SEC or the public.
- Voluntarily provide the information. If information is turned over to the SEC as the result of a court order, subpoena, or investigation, it is ineligible. This is true even if that non-voluntary information aids the SEC in pursuing the fraud.
- The information must lead to the SEC successfully enforcing securities laws and regulations against the offending party. In addition, the total monetary sanction recovered – to which you may be entitled a percentage as a reward – must exceed $1 million.
Auditors and accountants may also be able to participate. However, there are strict requirements for these individuals to become whistleblowers and to claim a reward. If you know of accounting fraud, you should speak with an experienced whistleblower attorney right away.
What Is The Reward For Being A Whistleblower?
Qualifying whistleblowers can receive between 10% and 30% of the monetary sanction recovered. The amount will vary and depends on numerous factors. Among them are the strength of the information provided and the cooperation given by the whistleblower and his or her attorney. An experienced attorney is essential to negotiating for the highest reward possible.
How Will I Be Protected Against Retaliation?
By having an attorney represent you, your claim can be filed anonymously. The law also protects whistleblowers from retaliation by their employers. Your employer cannot terminate, suspend, demote, harass, threaten, or otherwise punish you for becoming a whistleblower.
What Can Newman & Shapiro Do For Me?
Whistleblower statutes are unlike other laws, and Jeffrey Newman has vast experience with them. Jeffrey Newman also protects the rights of his clients by negotiating for the most reward under the law and helping employees who have been targeted for retaliation. Whistleblowers serve a vital role in protecting the integrity of our financial markets, and Jeffrey Newman fights for them from beginning to end.
If you have evidence of accounting fraud, call us today to schedule a confidential consultation.