Tuesday, September 2, 2008
Prabhat Goyal, former CFO of McAfee, will be sentenced in early October. Convicted in May 2007 for securities fraud and for making false statements to auditors, Goyal was found to have failed to recognize revenue generated by sales to a distributor using sell-in accounting.
Like the recent trials of the Rigases and Bernie Ebbers, the government failed to call an expert to testify on the alleged improper accounting. Although the trial court did not discard the verdict, the judge did acknowledge that at least one civil court had found that the SEC failed to meet its burden in a civil case when an expert was not used to provide an understanding of the alleged improprieties.
Although the defense argues differences with the Rigases and Ebbers cases, the fact that the same issue mentioned in their case is again being mentioned gives pause. CFOs rely on accountants and auditors for guidance. When there is a showing that no material information was being withheld, one has to wonder if a higher standard, or at least the civil standard ought to be considered.
One also has to wonder if the Supreme Court will eventually consider whether it is proper for the government to not present experts of a GAAP violation, and proceed without this substantiation and deliberation. For the time being,it looks like another appellate court will get to examine this issue.