A lie to compensate 3 billion dollars

By Sean Lewis,2015-02-08 07:59
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A lie to compensate 3 billion dollars

    A lie to compensate 3 billion dollars

    Mountain climb irregularities show that the independence of the certified public accountants should not only keep in essence, also should pay attention to the form of independence.By colleague relationship into the facts of the customer relationship, often harm independence in the form of the certified public accountants.Form the lack of independence, it is easy to cause the failure of the audit, mountain climb fraud and audit failure of ernst & young is the best example.

    On December 7, 1999,The United StatesNew Jersey judge William deng (Cendant) of the company worth ordered to pay $2.85 billion in damages to its shareholders.The ruling set the world record of securities fraud damages, Prudential than in 1994 (Prudential) securities firms to investors to pay $1.5 billion damages almost doubled.

    The board of the company responsible for the audit of ernst & young agreed to the mountain of the shareholder of the company pay the $335 million in damages, also hit a by far the highest compensation records of audit failure.At this point, climb the mountain of companies and their auditors involved in fraud scandal to compensate investors for nearly 3.2 billion dollars.

    At the beginning of the merger

    Hill's predecessor is the hotel industry company franchise system (HFS).Company founder, chairman and President is Henry west wurman (Henry Silverman), he on Wall Street is a famous, known as "just give the money to west wurman, not afraid of no money", his unique skill is through borrowing to buy all kinds of company, using the complementary business between each branch (such as enjoyment to promote customer list) in order to achieve the effect of a "rolling snowball" fashion.

    After years of mergers and acquisitions, west wurman makes HFS a group holding company, owned by companies including chain hotels spread out across the

    country and all over the world,tourismIndustry, car industry,The real estate, home loans, fund management, financial consulting, software engineering, computer network industry and other industries.

    In May 1997, HFS company listed on the New York stock exchange with 1990 Comp - U - Card (hereinafter referred to as "CUC) international company merger agreement.CUC was a chain services company, mainly engaged in tourism, retail, automotive, food, home improvement, and financial services, etc., as many as 60 million customers worldwide, the company was founded by walterForbes'(Walter a. Forbes) and cork Sheldon (Kirk Shelton).In December, the two companies formally merged, and changed its name to "mountain company".Board of the company after the merger, is mainly engaged in tourism services, real estate services and affiliate Marketing Alliance (Marketing) three big business.

    In the next year on March 31, mountain climb company submitted to the securities and exchange commission signed by all directors and financial managerThe annual report.Annual report, the company 1997 annual business income is $5.315 billion, net profit of $55.4 million.

    Who had, however, it is precisely this brought the disaster to mountain, an annual report.

    Board of the company in 1996, the business income of $3.909 billion, net profit of $424 million.In 1995, the twodata$2.992 billion and $303 million respectively.As of March 20, 1998 mountain climb the company's stock price to $40 per share, market value of $30.448 billion.

    As a formertaxLawyer, Henry west wurman has always been very cautious financially, for daily accounts a careful look.And CUC walter Forbes, head of the company, by contrast, he was bent on the direction of the enterprise, seldom ask financial details.Previously, CUC is responsible for the financial audit all by ernst &

    young.In fact, the danger of the seed planted as early as before the merger.As early as in 1991, the SEC will have challenged CUC company's financial statements (CUC listed on the New York stock exchange in 1990).

    When two companies merge, although each other professional audit survey, but these investigations are based on published data, not be able to obtain the internal information with each other.The new company after incorporating various business units of began to restructuring of the two companies.

    Board of the company in January 1998, 40 in a VIP to attend the meeting, President of west wurman privately asked two vice President later every day to collect all the receipts and expenditures of their company, and organize monthly report.It put forward a big problem for them, because they are from the former CUC company, in there, they never do so meticulous work.

    Because it is new, not familiar with, by year in March, the two vice President has not yet finished arranging financial total table in January.Board of the company and according to provisions of the securities and exchange commission, March 31, 1997 at the latest annual year submitted to the CSRC.West wurman nasty, replaced from CUC company financial personnel, from the original HFS company financial personnel take over the job.

    New financial personnel in place, found that the original CUC company's accounts have tens of millions of dollars income do not know from where, in addition, there are millions of dollars missing.But, responsible for auditing the ernst & young auditors said to west wurman and others keep not out of the question.For safe, west wurman still require the original CUC company's President and vice President to sign a statement, to ensure the accuracy of the original GUC company financial data.The statement also got certification auditors ernst & young, sign.Since then, west wurman also consulted the HFS auditors of the companydeloitte

    After the above procedures, west wurman to put down the heart.Mountain climb each director and financial bigwigs are sign your name on the 1997 annual report, and in March 31, 1998 formally submitted to the securities and exchange commission.


    However, the crisis speaking with you.After a few days of April 9, west wurman suddenly got a call from the mountain's chief financial officer, chief financial officer told him: there are two original CUC said the company's financial personnel, in the past few years, their boss instructed them false income, asking them to "no matter what, increase the income, or to reduce the cost, in a word, is the profits brought it anyway".The two outgoing financial personnel, oral testimony demands, and on April 14, signed a formal statement.

    When an abnormal situation have to ask: on April 9, when the two financial researchers report the fraud in the former CUC company, on the day of the mountain's companystockActive trading, volume of 14.4 million shares, far beyond the usual daily turnover of about 3 million shares.Due to the two financial personnel account information for internal information, only internal VIP may be aware of.This anomaly, written into the action of the original tell words ever since.

    On 15 April, after the market closes, the mountain's press release: the original CUC company severe financial fraud problems, make the mountain's 1997 annual profit may be less than previously reported $100 million to $115 million, the shock.

    The next day, the stock market opened, on the mountain on the company's share price by a session of $35.63 to $21.13, finally closing at $1.906 billion a share, a 46.5% drop, the company's total market capitalization of about $14 billion.Investors "vote with their feet" to the company, the shareholders eager to own company stock transfer out.From then on, mountain climb the company began to face a serious crisis of confidence.

    Then, mountain climb company hired a law firm and Arthur Andersen audit firms, to big mountain climb all financial closeout.However, in the process of the inventory, false accounting in the tong.

    In the process of organizing financial, auditors have found more and more secret.According to CUC company signed with HFS company "equivalence merger agreement," hill climb company after the establishment of the first team is composed of merge former executives of both sides, the first chief executive and chief financial officer from HFS company seal and mona grams.In order to realize the merger synergies to seal, as chief executive management team in mountain after its establishment, the company immediately to CUC company and HFS framework to integrate the company's business and management, including conduct integrated management of financial reporting system.

    In late February 1998, the decision, financial report preparation instead of HFS company chief accounting officer Scott Forbes is responsible for the preparation of consolidated statements.On both sides to discuss 1997 annual consolidated establishment issues, Shelton calls for CUC company merged with HFS company in the provision of $556 million "restructuring" return of $165 million, as the 1997 annual profit, and declare this kind of practice is used for a long time practice, CUC company and ernst & young certified public accountants have argued that this approach is feasible.

    The practice of the obvious contrary to generally accepted accounting principles make Scott Forbes on CUC company in the pastresultsDoubt, because before the merger, CUC company did not disclose the past year has a lot of profits from restructuring to turn it back.Silver, the CUC company did not tell me some previous choose against the practice of accounting standards, thus misleading the HFS company profitability of CUC company's judgment.

    On July 8, an accident occurs again, Arthur Andersen, found that the actual fraud, false accounting is far more than originally thought.They learned that the original CUC company finance director personally accounting fraud, and instructed his men about 20 accountants have changed the account.At the same time, this kind of fraud is not only in the year 1997, and it also occurred in 1995 and 1996 in the accounts.

    Board of the company, according to preliminary statistics of Arthur Andersen about $250 million in revenue in 1997 overstating, sign up for the $150 million, 1996,

    overstating the $1995 in annual sales in 1995.At this point, the amazing false insider revealed.

    On July 14, mountain climb company announced the discovery, the statement false than on April 15, forecast of serious, and in 1996 and 1995 is also the same problem.News, mountain climb the company's stock price from $22 two days ago, has dropped to the close of $15.69.

    Abnormal situation again: the day before, has boosted the company's shares traded, obviously have internal staff to do the hands and feet.After further audit and finishing, August 28, after four months of investigation, the special investigation team to the SEC filed a 280 - page report, detailing the CUC company's financial fraud methods and their effects.Survey results show that in order to cater to Wall Street's earnings expectations, CUC company mainly through six tactics of financial fraud: use "top adjustment", by tampering with quarterly reports;Gratuitous and ready to turn round, fiction current earnings;Any cancellation of assets, reduce the depreciation and amortization;Optional change revenue recognition criteria, exaggerate the membership fee income;Deliberately hide members will refund, underestimate membership;The integrated use of other fraud tactics, make false accounting information.

    By the means of fraud, CUC company during the period of 1995 to 1997, a total of fictitious operating income of $1.577 billion, more than $500 million in total profit and net profit of $439 million, false net income accounted for 56% of foreign reported net income.

    Mountain, the company will be corrected in 1995, 1996 and 1997, the annual report submitted to the securities and exchange commission.On the same day, mountain's shares fell to $11.63.

    Penalties to punish

    On July 28, Forbes announced his resignation, but his resignation has not quell investor's anger.The angry shareholders eager to bring the directors to justice.Law firms began to contact mountain climb around 478000 of the companystocksEast, respectively, for the record, and ready to prosecute mountain's company and the board members, ernst & young audit, etc.Lawyers call shareholders, got their signature, most to collective action, the prevailing charges in a way that only after the lawsuit.

    ChanZaiShan company headquarters is located in New Jersey, there are 52 collective or individual lawsuits.Counsel for the plaintiff to mountain climb the company and its 28 director and the top brass, ernst & young audit company sued the reason: in half of the director of the defendant is a former CUC and VIP, the directors of the company before they HFS and CUC company merger and acquisition (m&a) trial, checked the CUC detailed account of year, know the fact that financial false CUC.They have the right to, also has a responsibility to correct and prevent this kind of fraud, correct the corresponding data.They not only didn't go to correct or stop, instead, sign the calendar year's annual report.In the case of know false financial accounts, so the HFS and CUC merger agreement signed, and not to stop.At the same time, all the defendants had issued statements misleading, real errors.And,

    in the case of know mountain climb false insider, the directors of the defendants and VIP were sold $180 million worth of mountain's stake.

    Mount, it turns out, since the beginning of the lawsuit, the company is doomed to fail.Mountain climb to financial fraud wide scope, degree of verdict strictly, unprecedented in the history of financial fraud of listed companies in the United States.

    Before the fraud scandal, mountain, the company has 35000 employees, the business in more than 100 countries and regions, the annual revenues of more than $50.Mountain climb fraud not only for the compensation payable is famous for its huge, followed by a criminal responsibility shall be investigated are also remarkable.

    In June 2000, mountain climb fraud by three direct involvements, Mr Mo cowley, Gerry Arnold (former chief financial officer, to join the mountain before the company had Ren An for certified public accountants), Anne pember (former comptroller, join the mountain before the company had Ren An for certified public accountants), and cass wave saba, cupertino (accounting reports, accounting), vice President of financial fraud pleaded guilty and agreed to help the justice department and the SEC investigation, and as a "witness" headed.

    In February 2001, a federal grand jury in New Jersey in addition to the fraud charges for the three of them, also to the mountain's former chairman and chief executive walter Forbes and former chief operating officer of cork Sheldon securities fraud, financial fraud, telecom fraud, mail fraud, false statements and insider trading charges, if convicted, Forbes and Sheldon will be faced with 10 to 20 years in prison.

    In November 2002, the New Jersey prosecutors Christopher. Chris tyre announced two presiding partner of ernst & young mark rabinowitz and Ken, butcherfordAnd an audit manager prosecution for fraud, accusing them of serious misconduct, a blind eye to fraud, and facilitate the mountain's ACTS of fraud.On April 24, 2003, the SEC the two, the presiding partner of ernst & young off-limits ruling, banning them from provide audit services for listed companies in the past four years.So far, in the mountain climb fraud by formal criminal charges up to eight people, called the countless other related personnel, this is extremely rare before enron, shows that the United States department of justice have already punishing the determination for fraud.

    By October 2005, the struggling mountain in the field of tourism and real estate company formally divided into four, "hill's" the lasted only a few years the enterprise name of formal disappear.Henry west wurman this created a dozen big acquisitions, chief executive of the result is not so good, in the end he only travel company can only do for a living, to say goodbye to the real estate industry is completely.People commented that his original acquisition and set up the mountain for the company's strategy is right, for the company to maintain low debt and fixed cash flow decision making is also very good.But west wurman's own admission, investors were unimpressed, in his own words, "this is an art of success and failure in business case."

    Mountain climb after breaking up, the company's other three companies are another big shareholders inheritance, respectively, at this point, worth $21 billion, its

    market share price back to the 1998 years before the financial scandals of less than half.Everything back to before the merger, after the separation of four enterprises engaged in real estate, tourism, hotel and car rental four areas.In declaring the separation of that day of, the mountain's third quarter performance is very dull, only increased the 44 cents per share, fell by 21%, compared to a year ago a barrel hovered near $20 per share.Affected by oil prices and climate factors, leisure tourism industry worst operating conditions.

    Affected by the financial fraud scandals, mountain climb over the next few years in by selling assets.Although the stock market performance is very poor, also affected by the financial scandal, but the west wurman is the United States was one of the highest paid CEO, retirement is as high as millions of us dollars.As one of the company's largest shareholder, he hold 38 million shares and some vested options, these also caused investors to dispute.And your home, other three companies share price performance is better than mountain climb.

    Audit the warning

    Hill's influence range of accounting fraud, the degree of judgment of yan, a must in the history of financial fraud of listed companies in the United States.Ernst & young's CPA board of the company for many years as the predecessor of CUC company issued by misrepresentation of the financial statements audit report without reservations, represents a significant audit failure.From the audit point of view, ernst & young audit failure in the mountain climb company two profound warning to the earthling.

    The first warning is: the audit independence is missing.

    Mountain climb fraud by a striking feature is that the main fraud person associated with the audit firm ernst & young.Has pleaded guilty to waiting for the verdict, head of the three major financial two people before joining CUC company of ernst & young certified public accountants.Participate in other two chief financial officer of fraud from ernst & young.Mountain, the board of directors of the company report shows that the special investigation group CUC key financial position has six companies, including chief financial officer, the comptroller, director of the financial statements, consolidated management are dominated by certified public accountants from ernst & young, it was also the four former ernst & young certified public accountants to occupy the CUC key financial positions, plan and organize the implementation of the financial fraud directly.The four counterfeiters familiar with ernst & young audit routines, understand the ernst & young to CUC company audit and audit strategy, more covert and deceptive.

    Ernst & young, the presiding partner and audit manager with CUC executives was a colleague relationship, especially easy to relax vigilance.In the audit process while also found the clues of the financial fraud, but often was put forward by the four "a former colleague" explain and justify dissolve easily.Moreover, when the HFS company executives to CUC company from 1995 to 1997, accounting (mainly the merger to be prepared for the return as profit) when questioned, ernst &young partner has every possible way, for its trying to find a reasonable excuse.The lack of independence.

    Mountain climb irregularities show that the independence of the certified public accountants should not only keep in essence, also should pay attention to the form of independence.By colleague relationship into the facts of the customer relationship, often harm independence in the form of the certified public accountants.Form the lack of independence, it is easy to cause the failure of the audit, mountain climb fraud and audit failure of ernst & young is the best example.

    The second warning is that accounting firms and customers of shareholders and senior executives must keep a certain distance.

    Keep close relationship with customers, is most accountants business strategy.Close customer relationship, however, may be a double-edged sword, can improve the efficiency of the audit, can also lead to audit failure.

    Dialectically look, keep a long-term stability of the close relationship with the customer, both promote CPA understanding of customers industry and business, but also to determine customer of certified public accountants executives and the internal control is trustworthy, and thus improve the efficiency of the audit.

    However, close customer relationship may cause audit risk.On the one hand, it may fade of certified public accountants shall have the professional prudence and professional scepticism.In the case of the mountain climb, there are hundreds of CUC company pen without any original documents in support of the accounting entries, ernst & young certified public accountants should can't find a pen.Close relationship between, on the other hand, may also be the accountant deviates from the transcendental independent position, and even lead to audit failure.Ernst & young's presiding partner actually, for example, CUC company will combine the practice of getting ready to turn a profit.

    Eventually, ernst & young and CUC company "blame", this may be lead to one of the important reasons of ernst & young audit failure.Communicate with enron, xerox, and the world of audit failure, ernst & young audit failure in the CUC company forced people to reflect on such a question: whether it should be for certified public accountants practice (CompulsoryRotation) of regular mandatory rotation, to prevent them from the relationship between the customer and too close

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