April 4, 2014 — The financial fraud whistleblower program established in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act makes informants eligible for hefty rewards when they notify the Securities and Exchange Commission (SEC) about securities law violations. Insiders who tip off the government about accounting fraud or fraudulent bond offerings may receive up to thirty percent of the government’s total recovery, provided the proceeds top $1 million.
Finance Professionals and Executives from Former International Law Firm Charged by SEC with Accounting Fraud to Inflate Income
Five former executives and finance professionals with Dewey & LeBoeuf, a now-defunct international law firm, have been charged by the SEC with helping to orchestrate a $150 million fraudulent bond offering.
In 2008, the former law firm was short on cash as a result of the recession and the costs of an expensive merger. Dewey & LeBoeuf’s financial professionals were concerned that the firm’s bank lenders might shut off the tap on the credit line if revenue declines continued. By jiggering the firm’s internal accounting system, the finance professionals were able to inflate profitability — on paper, anyway — by $36 million in 2008. The phony tricks including reclassifying compensation as equity distributions, inaccurately accounting for the firm’s lease obligations and describing millions of dollars of firm credit card debt as sham disbursements owed by clients.
When the cooked numbers were used by finance executives with the firm to file 2009 financial statements, Dewey & LeBoeuf’s income allegedly was misstated by $23 million. The fraudulent shenanigans were openly discussed in emails among several alleged participants. A purported $7.5 million cost savings was entitled “Accounting Tricks,” for example. One email discussed an intention to stop “cooking the books” while contemporaneous email correspondence joked about taking bonuses and buying a ski house.
Dewey & LeBoeuf also looked to the bond markets to generate cash with a private offering that touted the fraudulent financial numbers. The SEC alleges that Dewey & LeBoeuf persisted in relying on its improper accounting practices even following the close of the offering in April 2010. When making the quarterly certifications mandated by the note purchase agreement associated with the bond offering, Dewey & LeBoeuf allegedly provided its lenders and investors with fraudulent certifications about the firm’s financial status.
Whistleblowers Notify SEC About Accounting Scams that Mislead Potential Investors
Company insiders may be the first to uncover accounting fraud as described in this instance. Before stepping forward to notify the government about such irregularities, informants need to become familiar with their own rights under the rules of the Dodd-Frank whistleblower program. With whistleblower lawyers in Texas, California and the Washington, D.C. area, Waters & Kraus remains steadfast in its devotion to protecting informants’ rights. Contact us by email or call our whistleblower lawyers at 855.784.0268 to discuss how we can collaborate to do what’s right.