Rich and Wealth

Application Examples (3)

The complaint alleged that Covey and Skadra caused System Software to misstate its financial results during its fiscal years 1994 through 1996 by improperly reporting revenue on sales of a evelopment-stage UNIX-language software product. Customers who purchased the product allegedly experienced severe and continuing difficulties with its performance and often rejected it. According to the SEC, revenue was not earned and should not have been recognized because “there existed significant uncertainties about customer acceptance of the product and collectibility of the contract price and significant vendor obligations remained. . . .”58 The commission also alleged that System Software recognized revenue from sales of its UNIX product that were subject to side letters or other material contingencies that effectively negated the sales.

System Software, Covey, and Skadra were charged with violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, and 13a-13 of the 1934 Act. At the time of this writing, these and other charges had not been resolved.

The charges against America Online, FastComm Communications, and System Software demonstrate well how the commission uses the Securities Acts, and especially the identified sections and rules, to pursue and clean up perceived accounting abuses. Issues of accounting that hinge on judgment that, in the opinion of the SEC, move beyond the boundaries of GAAP are handled without allegations of fraud. However, when there is perceived fraud, the SEC does not hesitate to incorporate alleged violations of the antifraud provisions of the Securities Acts into its complaints.

Taken From : The Financial Numbers Game