Thursday, November 3, 2005
The former CFO for Bon Secours Cottage Health Services, David Zilli, entered a guilty plea in the U.S. District Court for the District of Maryland and settled an SEC securities fraud action alleging that he cooked the books by approximately $117 million between 1998 and 2003. The SEC Litigation Release (here) states:
According to the complaint, from 1998 through 2003, the accounting department prepared preliminary financial statements for Cottage Health and forwarded them to Zilli for review. Zilli, on numerous occasions, independently devised complex adjusting manual journal entries to the preliminary statements, lacking any support or accounting basis. The accounting department then finalized the monthly reports for Cottage Health after making the adjustments that Zilli had instructed the accounting personnel to make. The Commission alleges that the adjustments made by Zilli artificially and fraudulently boosted Cottage Health's income in each period. As alleged, Zilli created the fraudulent journal entries to derive the specific income amount that he wanted to book for the particular period in order to ensure that Cottage Health's reported performance figures met its financial targets. The complaint further alleges that Zilli's fraudulent accounting resulted in the overstatement of three general categories of Bon Secours' assets: accounts receivable, fixed assets and inventory.