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October 1, 2023

Accounting Fraud Watch: Deloitte Malaysia Office Raided, Ex-Autonomy CFO Jailed, GT Advanced Technologies Settles

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Here’s some news on accounting frauds and scandals from the last couple of weeks that you might have missed.

Malaysian police raid Deloitte office for 1MDB-related documents: sources [Reuters]
Even though this is more scandal than fraud, whenever a Big 4 firm gets raided by police, we’ll fit it in somehow. This happened today:

Malaysian police raided the Kuala Lumpur office of audit firm Deloitte on Thursday as part of a widening probe into a multibillion-dollar scandal at state fund 1MDB, two police sources told Reuters.

Investigators seized documents and records related to the firm’s dealings with 1Malaysia Development Berhad (1MDB), one of the sources said.

Deloitte audited 1MDB’s financial statements for 2013 and 2014 before it resigned as the fund’s auditor in early 2016.

Authorities in at least six countries are investigating alleged graft and money laundering at 1MDB, set up by former Malaysian Prime Minister Najib Razak in 2009. Najib, who was ousted in an election last year, is facing dozens of criminal charges over losses at 1MDB and other state entities. He has denied any wrongdoing.

Ex-Autonomy CFO sentenced in U.S. to 5 years prison over Hewlett-Packard fraud [Reuters]
Sushovan Hussain, the former finance chief of British software company Autonomy, was sentenced on May 13 to five years in prison, after a U.S. jury found him guilty of fraud over the $11.1 billion sale of Autonomy in 2011 to Hewlett-Packard.

Sushovan Hussain

Hussain, 55, was also fined $4 million and ordered to forfeit $6.1 million by U.S. District Judge Charles Breyer in San Francisco. He plans to appeal.

Prosecutors accused Hussain of using backdated contracts and other forms of accounting fraud to inflate Autonomy’s revenue, in an effort to attract potential buyers.

He was convicted in April 2018 on 16 wire fraud, securities fraud, and conspiracy counts.

Apple Supplier Accused of Lying About Contract [CFO]
GT Advanced Technologies and its former CEO, Thomas Gutierrez, have settled SEC allegations that they misled investors about its performance of a contract to supply Apple with sapphire glass for iPhones.

Thomas Gutierrez

GT knew by late April 2014 that it had failed to meet quantity, quality, and delivery standards under the contract, resulting in Apple withholding the final $139 million installment payment and giving it the right to accelerate repayment of the $306 million previously advanced to GT, the SEC said.

But in August 2014, Gutierrez told analysts in an earnings call that GT expected to receive the final payment by the end of October 2014. Weeks later, the company filed Chapter 11 bankruptcy.

The SEC called the contract a “game-changing event” for GT that was “material to GT’s revenue and reported liabilities and how its stock was valued.”

As part of a settlement of civil securities fraud charges, Gutierrez agreed to pay $140,000 in civil penalties, disgorgement, and prejudgment interest.

Prosecutors seek arrest warrant of Samsung BioLogics CEO [Korea Biomedical Review]
The Seoul Central District Prosecutors Office is seeking an arrest warrant of Samsung BioLogics CEO Kim Tae-han, as part of its investigation into the company’s alleged accounting fraud.

Kim Tae-han

Prosecutors also sought warrants for two Samsung Electronics vice presidents on similar charges.

The charges brought against Kim include ordering the concealment and manipulation of Samsung BioLogics and Bioepis’ accounting data and internal reports ahead of the investigation by prosecutors. The two Samsung Electronics vice presidents were under similar charges as they allegedly ordered two Samsung Bioepis executives to destroy relevant evidence.

One of the two Samsung Bioepis executives surnamed Yang, who was arrested and indicted last week, is known to have ordered his subordinates to delete about 2,100 computer files that mention “merge” or “JY” (Lee Jae-yong, vice chairman of Samsung Electronics) from the laptops and mobile phones of relevant employees. Prosecutors have also requested Samsung Bioepis’ CEO Ko Han-sung to turn in his phone.

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