The Securities and Exchange Commission requires that all publicly traded companies file reports with them periodically (quarterly and annually) and that those reports contain the company’s financial results. Auditors, also called Certified Public Accountants (“CPA”), are the outside companies hired by the company that investors rely upon to certify that certain of those reported financial results are truthful and accurate, and reported in compliance with generally accepted accounting principles (“GAAP”). To accomplish this, auditors are supposed to perform a thorough review to the company’s control systems and perform tests according to generally accepted auditing standards (“GAAS”). Unfortunately, as investors have learned to their dismay, auditors sometimes turn a blind eye and improperly certify financial results despite “red flags” giving them clear warning that all is not right. When the truth is revealed the auditors can be liable for the fraud.

Major current cases are those involving:

  • Stock analyst fraud: In the age of information, the stock analyst is supposed to be the tool that culls the wheat from the chaff and gives you the real story on a company’s potential to earn you a steady return on your investment. Sometimes the reality is far different. Analysts work for brokerage houses that, sometimes, reward them for glowing recommendations and positive, upbeat predictions. After all, no one wants to buy stock when they are told earnings look bleak. So, right or wrong, the analysts’ reports are likely to be predictions of growth, regardless of what the company’s business plan or prospects looks like. When an analyst fabricates information they know or hope will cause investors to buy or sells a security, that’s fraud.

  • Mutual Funds: During late 1990s and early 2000s, the number of people investing in the stock market grew dramatically. Because mutual funds are supposed to take the guess work out of investing, they became one of the most popular vehicles to invest in the stock market. However, investigations by federal and state agencies, and our Firm, have uncovered that in clear violation of their fiduciary responsibilities and stated policies, mutual funds participated in a "market timing" scheme. Market timing is where large mutual fund investors were allowed to trade in and out during the day to exploit short-term price moves and inefficiencies in the manner in which the mutual funds priced their shares, damaging their most loyal customers, the "buy and hold" investors. These large mutual fund investors were also allowed to trade after hours to take advantage of company announcements after the stock market had closed. These illegal activities reduced the return of the "buy and hold" investors and, in many cases, the investors' principal was damaged as well.

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