SEC Charges Diebold and Execs With Fraudulent Accounting Scheme

The SEC today charged Diebold, Inc. and three of its former executives with engaging in a fraudulent accounting scheme to inflate the company’s earnings. The SEC also filed an enforcement action against Diebold’s former CEO seeking reimbursement of certain financial benefits that he allegedly received while Diebold was committing accounting fraud.

The SEC alleges that Diebold’s financial management prepared “opportunity lists” of ways to close the gap between the company’s actual financial results and analyst forecasts, many of which were “fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold’s financial performance.” These fraudulent accounting allegedly practices included:

  • Improper use of “bill and hold” accounting.
  • Recognition of revenue on a lease agreement subject to a side buy-back agreement.
  • Manipulating reserves and accruals.
  • Improperly delaying and capitalizing expenses.
  • Writing up the value of used inventory.

Diebold agreed to pay a $25 million penalty to settle the SEC’s charges. Its former CEO, Walden O’Dell, who the SEC did not allege engaged in the fraud, agreed to reimburse $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock under the “clawback” provision (Section 304) of the Sarbanes-Oxley Act.

The SEC’s case against the company’s’s former CFO Gregory Geswein, former Controller and later CFO Kevin Krakora, and former Director of Corporate Accounting Sandra Miller is ongoing.

The SEC stated that counsel for the defendants are as follows:

  • For Diebold: Jonathan B. Leiken and Stephen G. Sozio at Jones Day in Cleveland
  • For O’Dell: Joshua R. Hochberg at McKenna Long & Aldridge LLP in Washington
  • For Geswein: Stephen S. Scholes at McDermott Will & Emery in Chicago
  • For Krakora: John J. Carney and Jonathan R. Barr at Baker Hostetler LLP
  • For Miller: Virginia A. Davidson at Calfee, Halter & Griswold LLP in Cleveland

1 Comment

  • bookkeeping
    Posted August 9, 2012, 8:53 am 8:53 am 0Likes

    Arthur Levitt, during his tenure at the SEC, experienced many cases where the non-indexed mutual fund manager bought shares for their own accounts before the fund bought the shares. The fund’s purchases drove up the price of the stocks and the fund manager’s made a killing on the deal. This is called “front running,” and is illegal under securities laws.

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