Accounting Fraud Crimes
Accounting fraud often involves the manipulation of the financial information of public corporations with the purpose of misleading investors. The collapse of Enron is one of the most well known cases of accounting fraud. Accounting fraud is also closely related to security fraud. Cases of security fraud or money laundering are considered accounting matters when the accused individual is an accountant or works for an accounting firm and committed the crime while involved in some aspect of their occupation. To learn more information about accounting fraud crimes, click here for the FEDERAL BUREAU OF INVESTIGATION, Financial Crimes Report to the Public B1 (May 2005; last visited Jul. 30, 2005).
Those who commit accounting fraud use manipulation and deception to attain some end, breaking current federal laws in the process. Accounting fraud encompasses a variety of crimes, including:
- Insider trading
- Buying or selling unregistered securities
- Purposely falsifying statements or neglecting to include certain facts when filing documents with the Securities and Exchange Commission (SEC)
- Falsifying statements, omitting facts, or using any scheme or deceit with the purpose of defrauding potential security purchasers when involved in interstate communications
- Money Laundering
18 USCS § 1520 (2005)
Under section 1520, any accountant who conducts an audit of an issuer of securities to which 15 U.S.C. § 78j-1(a) applies, must maintain all audit or review workpapers for a period of 5 years from the end of the fiscal period in which the audit or review was concluded. 18 U.S.C. § 1520(a)(1).
Furthermore, the Securities and Exchange Commission shall promulgate, such rules and regulations, as are reasonably necessary, relating to the retention of relevant records such as workpapers, documents that form the basis of an audit or review, memoranda, correspondence, communications, other documents, and records (including electronic records) which are created, sent, or received in connection with an audit or review and contain conclusions, opinions, analyses, or financial data relating to such an audit or review, which is conducted by any accountant who conducts an audit of an issuer of securities to which 15 U.S.C. § 78j-1(a) applies. The Commission may, from time to time, amend or supplement the rules and regulations that it is required to promulgate under this section, after adequate notice and an opportunity for comment, in order to ensure that such rules and regulations adequately comport with the purposes of this section.
The Punishment for a knowing of willful violation of section 1520(a) is
- a fine, imprisonment for not more than 10 years, or both. 18 U.S.C. § 1520(b).
Case Law Interpreting Section 1520
Because section 1520 was recently enacted, there is no published case law interpreting it.
15 U.S.C. § 78j (2005)
It is a violation of section 78j for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange-
- to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in 15 U.S.C. § 78c),
- any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. §78j(b)
Case Law Interpreting Section 78j
To state a claim under section 78j, a plaintiff must allege (1) the defendant made an untrue statement of material fact or failed to state a material fact; (2) the defendant made the misrepresentation in connection with the purchase or sale of a security; (3) the defendant made the misrepresentation with scienter; and (4) the plaintiff relied on the misrepresentation and sustained damages as a proximate result of the misrepresentation." United Int'l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1220 (10th Cir. 2000) (interpreting statute in civil case). When the SEC brings a case against a defendant, it is "required to 'show that there has been a misstatement or omission of material fact, made with scienter.'" Ponce v. SEC, 345 F.3d 722, 729 (9th Cir. 2003) (quoting SEC v. Fehn, 97 F.3d 1276, 1289 (9th Cir. 1996). In a different case, the SEC was forced to prove "the following elements: (1) a material misrepresentation, (2) in connection with the purchase or sale of a security, (3) scienter, and (4) use of the jurisdictional means." SEC v. C. Jones & Co., 312 F. Supp. 2d 1375, 1379 (D. Colo. 2004)
18 U.S.C. §§ 1956 & 1957
Please consult our "money laundering" page, here, for more information on the elements of money laundering.
Case Law Interpreting Accounting Fraud and Money Laundering
Appellant accountant compiled three volumes of sources relevant to defrauded bank's duties under the Community Reinvestment Act and gave a seminar on the same subject. For these services, she billed defrauded bank over $425,000 in a series of invoices beginning in April of 1988. Appellant accountant's co-defendant, who was involved with a recapitalization plan for the defrauded bank, approved most or all of her invoices. Appellant accountant deposited the money generated by the defrauded bank's checks into her First City Bank account and moved the funds into a Worth checking account in the name of Allen & Associates. She then transferred to co-defendant well over one fourth of the money she earned. The money laundering allegedly concealed the proceeds of the misapplication of fund derived from a conspiracy. The funds at issue in each of the transactions became proceeds at the moment the money left the control of First City Bank and was deposited into an account of a consultant or borrower. United States v. Allen, 76 F.3d 1348 (5th Cir. 1996).
Any willful violation of the securities laws of the United States can result in
- a fine of not more than $5,000,000 ($25,000,000 if a corporation)
- imprisonment for not more than 20 years, or
- both. 15 U.S.C. § 78ff.
The punishment for money laundering is found on our money laundering page, here.
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