Posted On: 12/08/2012 7:19:32 AM
Post# of 43065
Johnik: There are two aspects to the SEC complaint.
1) The accounting of the value of the media credits was in violation of SEC accounting rules. This was the point made in the book. The book was illustrating that an asset must be declared to have a value that reflects the price paid for the asset, regardless the "intrinsic" value of the asset. JBI clearly violated that rule.
2) The accounting was done in the manner in which it was done, paying $1 million and showing it on the 10Q being worth $10 million, in an attempt to defraud investors by making the value of the company seem more than it actually was.
It is the second point that really is in question. The first point cannot be argued. The rules are the rules.
The book suggests that sometimes the accounting misstatements are related to fraud. Mr. Zack stated in his email reply to me:
All of the cases profiled in my book involve some form of accounting misstatement in
the financial statements, meaning the accounting standards were violated. I
separately deal with the issue of whether or not accounting misstatements represent
fraud (i.e. it may simply be an accounting error, unless there is an intent to deceive,
which makes it fraud). In JBI's case, there clearly was an accounting misstatement, so
it was a useful case to illustrate the specialized accounting principles that apply to
that area. The fact that all fraud-related allegations have not yet been resolved
doesn't diminish the value of the example that JBI provides of the risks associated with
the accounting issue itself.
I hold the opinion that Mr. Bordynuik and Mr. Baldwin knew what they were doing when they misstated the value of those media credits. The SEC complaint provides a timeline of events that show he was advised by more than one person not to report the media credits as they were reported.
See items 18 through 26 and 30 through 32 in my condensed version of the SEC complaint:
1) The accounting of the value of the media credits was in violation of SEC accounting rules. This was the point made in the book. The book was illustrating that an asset must be declared to have a value that reflects the price paid for the asset, regardless the "intrinsic" value of the asset. JBI clearly violated that rule.
2) The accounting was done in the manner in which it was done, paying $1 million and showing it on the 10Q being worth $10 million, in an attempt to defraud investors by making the value of the company seem more than it actually was.
It is the second point that really is in question. The first point cannot be argued. The rules are the rules.
The book suggests that sometimes the accounting misstatements are related to fraud. Mr. Zack stated in his email reply to me:
All of the cases profiled in my book involve some form of accounting misstatement in
the financial statements, meaning the accounting standards were violated. I
separately deal with the issue of whether or not accounting misstatements represent
fraud (i.e. it may simply be an accounting error, unless there is an intent to deceive,
which makes it fraud). In JBI's case, there clearly was an accounting misstatement, so
it was a useful case to illustrate the specialized accounting principles that apply to
that area. The fact that all fraud-related allegations have not yet been resolved
doesn't diminish the value of the example that JBI provides of the risks associated with
the accounting issue itself.
I hold the opinion that Mr. Bordynuik and Mr. Baldwin knew what they were doing when they misstated the value of those media credits. The SEC complaint provides a timeline of events that show he was advised by more than one person not to report the media credits as they were reported.
See items 18 through 26 and 30 through 32 in my condensed version of the SEC complaint:
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