Monday, March 31, 2008

Deceptions in Accounting and Disclosures

Lately, many business companies have been plagued by controversies surrounding phony accounting, misrepresentation of company financial status, and other misleading information. These deceitful acts are often made to cover up for losses or to give false impressions of a company’s real score.

In the article, “Overstock.Com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures”, posted in February 4, 2008, one of the fraudulent acts in business was enumerated and identified.

According to the article, declaring an increase in sales without proper documentation is one of the most deceitful acts in securities fraud. In most cases, companies who try to project themselves as a growing business often inflate and exaggerate the statistical information.

The article, which is actually a reply to a prior message of another business executive, has accused the company of giving a false statement on its growth by using misleading information on its sales record. The writer of the article said the false disclosure was made by using the shipping record of deliveries instead of the actual sales.

Why do companies do these?

Some companies do these to attract buyers and prospective investors. In order to avoid being defrauded, here are some important pointers to remember when investing:

  • Select a broker or investment advisor who understands your financial objectives. Interview several people to compare experience, education and professional background.

  • Get written financial information such as a prospectus or an annual report before making an investment in stocks, bonds or mutual funds.

  • Understand how the broker is compensated and what fees you will pay to purchase and sell securities and to maintain the account.

  • Be wary of promises of quick profits, offers to share inside information, and pressure to invest before you have an opportunity to investigate.

  • Talk with the firm's manager if you have a problem with your broker or your account.

  • Contact the U.S. Securities and Exchange Commission, the National Association of Securities Dealers, or your state securities regulator if you cannot resolve the problem.

There are expert lawyers who can help you with many corporate issues such as securities fraud. Consulting with an expert corporate lawyer is definitely a good start.