Is this financial fraud?

Discussion in 'Ask a Whistleblower Attorney' started by anonymous, May 21, 2019 at 4:06 PM.

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  1. anonymous

    anonymous Guest

    I know of a company that sells very expensive capital equipment. I know of a few instances where right before the end of quarterly reporting they shipped expensive equipment to some hospitals even if the hospitals had not requested the equipment or issued a purchase order.

    In one case someone was driving around and around a city with the equipment while a rep was calling on the hospital desperately trying to get them to purchase the equipment. So even though it was not ordered the company counted it as a sale for reporting purposes.

    I am not sure if the company is still doing this. Would this be illegal/fraud?
     

  2. anonymous

    anonymous Guest

    There are accounting standards that outline when a sales transaction is sufficiently complete that it can be counted as revenue. It is not necessary dot every "I" and cross every "T" before recording a sale, but what you have outlined here does not come close to meeting the standard. In general there must be an agreed contact, risk of loss must have been transferred (i.e. title to the goods actually passes to the hospital), the hospital must be fiscally sound enough that payment for the goods is reasonably assured, and others.

    If salesmen are still driving around with goods in the car, or if goods have been delivered but the hospital has not ordered them, those are phantom transactions. Reporting those as closed sales violates a host of SEC regulations, the Sarbanes-Oxley Act, and other statutes. If the violation was intentional then it is fraud.
     
  3. anonymous

    anonymous Guest

    Hi,


    Yes, the behavior you described could be considered financial fraud. This type of practice is sometimes known as channel stuffing which is used to improperly beef up quarterly reports so the stock price won’t be affected by a down quarter.
     
  4. anonymous

    anonymous Guest


    What kind of equipment? What happened when the hospitals received equipment they didn't order?
     
  5. anonymous

    anonymous Guest

    At this point I would rather not say the type of equipment. I know of at least one instance when the hospital sent the equipment back and one where the company had to offer a deep discount to get the hospital to take delivery.
     
  6. anonymous

    anonymous Guest

    No pressure. If you decide to share at some point, I'd be interested in researching more.
     
  7. anonymous

    anonymous Guest

    Just out of curiosity, are you the attorney answering questions on this forum or are you another attorney?
     
  8. anonymous

    anonymous Guest


    I’m not an attorney, but I always find this sort of thing interesting to learn from in my research.