Tuesday, June 13, 2006
The U.S. Attorney's Office for the D. Massachusetts reports in a press release here that a former executive of North Andover Corporation was convicted of securities and wire fraud, following a nine day trial. The press release states that:
"The evidence established that GOODWIN [former Senior Vice President of worldwide sales at Interspeed, Inc.] falsely overstated the sales and revenues of Interspeed by approximately $9 million, over 60% of the company’s publicly reported revenues, through various fraudulent acts. These included: inducing customers to place orders for Interspeed equipment by entering into secret side letters that provided the customers with the right to return the equipment at no cost, thus inflating the company’s apparent sales; fraudulently altering a key contract document on what purported to be the largest sale in Interspeed’s history so that the company’s internal finance staff and outside auditor would approve recognizing the revenue on the transaction; and taking various steps to evade discovery of the illusory nature of the foregoing sales. Through such conduct, GOODWIN inflated Interspeed’s revenues to make them appear higher than the revenues actually generated, thus causing Interspeed consistently to report to the public that it had met or exceeded its revenue targets when, in truth, Interspeed was not meeting its targets."
The press release notes that the company dismissed Goodwin in 2000 and made disclosures. The result - "the price of Interspeed’s stock fell by more than 50 %, the company was delisted by NASDAQ, and it subsequently went out of business."
The moral of this story is that companies need to be attuned to what is happening within its midst. Monitoring and correcting problems may be beneficial to all involved.