August 5, 2014
SEC charges CEO, CFO with Sarbanes-Oxley Violation
U.S. – The SEC has laid charges against the CEO and former CFO of a Florida-based computer equipment company for misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting. The SEC said the improper accounting maneuvers were performed in order to maximize the amount of money that QSGI Inc. could borrow from its chief creditor.
The Sarbanes-Oxley Act of 2002 requires a management’s report on internal controls over financial reporting to be included in a company’s annual report. The CEO and CFO must sign certifications confirming they’ve disclosed all significant deficiencies to the outside auditors, reviewed the annual report, and attest to its accuracy.
The SEC alleges that CEO Marc Sherman and former CFO Edward L. Cummings represented in a management report accompanying the fiscal year 2008 annual report for QSGI that Sherman participated in management’s assessment of the internal controls. However, Sherman did not actually participate. The Enforcement Division further alleges that Sherman and Cummings each certified that they had disclosed all significant deficiencies in internal controls to the outside auditors. On the contrary, Sherman and Cummings misled the auditors – chiefly by withholding that inadequate inventory controls existed within the company’s Minnesota operations.
They also withheld from auditors and investors that Sherman was directing and Cummings participating in a series of maneuvers to accelerate the recognition of certain inventory and accounts receivables in QSGI’s books and records by up to a week at a time.
Cummings agreed to settle the charges, and the SEC’s Enforcement Division will litigate its case against Sherman in a separate administrative proceeding.
“Corporate executives have an obligation to take the Sarbanes-Oxley disclosure and certification requirements very seriously. Sherman and Cummings flouted these regulatory requirements and misled investors and external auditors in the process,” says Scott W. Friestad, associate director in the SEC’s Enforcement Division.