Accounting Fraud Watch: Samsung Bioepis, Celadon Group, More on BT Italy

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Catching you up on the latest fraud happenings in the world of accounting.

Two Samsung employees arrested over alleged cover-up [Financial Times]
Two executives of Samsung’s biopharmaceutical unit were arrested earlier this week on suspicion of destroying evidence to cover up an alleged $3.9 billion accounting fraud.

The Seoul Central District Prosecutors’ Office in South Korea on April 29 arrested an executive and another employee at Samsung Bioepis, the biosimilar unit of Samsung Group, for falsifying and destroying evidence and violating the country’s audit laws.

The two unnamed employees are the first to be arrested after prosecutors launched a probe into the case in late 2018. South Korea’s Securities and Futures Commission, the country’s financial watchdog, had already ruled that Samsung Biologics violated accounting rules by intentionally inflating the value of affiliate Samsung Bioepis.

Prosecutors said the two employees arrested are suspected of destroying key accounting records and internal documents ahead of the investigation by financial regulators and prosecutors. They are also accused of manipulating accounting data before submitting the data to regulators.

They admitted to destroying the evidence on their own, but prosecutors are investigating whether their superiors told them to do it.

Celadon Group to pay $42.2M in restitution for accounting fraud [Compliance Week]
Indianapolis-based trucking company Celadon Group will pay back $42.2 million for filing materially false and misleading statements to investors and falsifying books, records, and accounts.

The SEC alleges that between mid-2016 and April 2017, Celadon avoided recognizing at least $20 million in impairment charges and losses—almost two-thirds of its 2016 pre-tax income—by selling and buying used trucks at inflated prices from third parties. Because of the alleged scheme, Celadon overstated its pre-tax and net income and earnings per share in its annual report for the period ending June 30, 2016, and in its subsequent public filings for the first two fiscal quarters of 2017.

The SEC charged Celadon with fraud on April 25, in addition to reporting, books and records, and internal control violations. The company admitted to those violations and agreed to a permanent injunction and to remediate the material weaknesses in its internal control over financial reporting.

Celadon has also agreed to pay $7 million in disgorgement, which will be deemed satisfied by Celadon’s payment of restitution in a separate action announced by the U.S. Department of Justice.

British Telecom’s Italian job had London roots, say investigators [Reuters]
In February, we told you that a criminal investigation was underway into a 2017 accounting fraud at the Italian unit of British phone company BT, in which two dozen people at BT Global Services, including its CEO, CFO, and head of Europe, allegedly knew about inflated revenues and made-up transactions, among other things. In addition, Andrea Alessandri, the partner who led the PwC team in charge of auditing BT Italia’s accounts, is accused of falsifying the audit.

Reuters revealed late last month that emails show for the first time why Italian prosecutors allege that BT executives were at the heart of the problem, contrary to the company’s assertions that managers at its head office in London knew nothing about the misconduct.

“A series of emails between the top financial executives of BT Plc and managers of the (Italian) unit point to the existence of ‘insistent’ requests by the leadership of the parent company aimed at achieving ambitious economic targets, even using aggressive, anomalous and knowingly wrong accounting practices,” Italy’s financial police said in a 353-page report.

For example, the report includes emails from Brian More O’Ferrall, the then-CFO of BT Europe and current finance director at BT Wholesale, the company’s business-to-business division, who asked colleagues in Italy to find ways of adjusting their accounts to boost profits.

Several BT shareholders have filed a class-action lawsuit in the U.S. alleging the company misled investors and failed to promptly disclose the financial irregularities. BT has moved to have the case dismissed.

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