Question: A Fortune 500 CFO admits to having deliberately treated $4 billion in operating expenses as assets, thereby allowing the corporation to show profits instead of

A Fortune 500 CFO admits to having deliberately treated $4 billion in operating expenses as assets, thereby allowing the corporation to show profits instead of losses. The auditor never detects this. The corporation’s stock drops 95 percent and bond covenants related to billions in debt are breached. At its peak price last year, the CFO sold stock (acquired through options) for $15 million, generating a $10 million gain.
a. Why might the corporation have to file for bankruptcy protection?
b. What provisions of the securities law could be the basis for a class- action lawsuit by the stockholders?
c. Why will the 1995 Act probably not stop a class- action lawsuit from proceeding to the discovery phase?
d. Why will the CFO be subject to criminal (as well as civil) securities sanctions?
e. Will the SEC likely ever allow the CFO to be an officer or director of a publicly traded corporation in the future?
f. Will the SEC allow the CFO to keep the $10 million gain on the stock?
g. What kind of civil penalties could the SEC impose on the CFO?

Step by Step Solution

★★★★★

3.31 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a These facts were inspired by WorldCom Bonds and other longterm debt of a company can comprise an enormous portion of its balance sheet While the deb... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

560-L-B-L-B-O (1031).docx

120 KBs Word File

Students Have Also Explored These Related Business Law Questions!

Assume you work as a staff member in a large accounting department for a multinational public company. Your job requires you to review documents relating to the company's equipment purchases. Upon...

Electronic Arts Inc. (EA) is a name that is familiar to most gamers. The company develops and distributes software products such as Battlefield, Mass Effect, Need for Speed, Dragon Age, The Sims,...

Prior to the start of fiscal 2010, managers of MultiTech hosted a Web conference for their shareholders, financial analysts, and members of the financial press. During the conference, the CEO and CFO...

Question 4 Read the article entitled "Lies, Damned Lies, and Managed Earnings The crackdown is here". It is posted on Canvas at the bottom of the Assignments section in the Assignments tab. In one...

I am dyslexic so it takes much longer for me to do any reading, so any and all help is greatly appreciated. I will be sure to thumbs up! Please I need help... Report Layout Structure Table of...

I'm willing to take this before the 19th of may. PROFESSIONAL ISSUES When a company looks too good to be true, it usually is. ; i - I The Rise and Fall of Enron BY C. WILLIAM THOMAS f you''re like...

Hi, I've talked to you earlier that you know the answers for the Enron case. Is it possible to get this done by afternoon of Wednesday at best. If not I'm also willing to take this on a Friday....

I am dyslexic so it takes much longer for me to do any reading, so any and all help is greatly appreciated. I will be sure to thumbs up! Please I need help... Report Layout Structure Table of...

CASE 20 Enron: Not Accounting for the Future* INTRODUCTION Once upon a time, there was a gleaming office tower in Houston, Texas. In front of that gleaming tower was a giant "E" slowly revolving,...

Jeong-ho is a citizen of South Korea. He first arrived in Australia at the age of 18 to study at university, on a Student Class TU (subclass 500) visa, having lived with his mother in South Korea up...

population of college-educated E M F 460 140 adults in a small town, categorized by gender and employment status U 40 260 total 300 500 400 total 600 Find P(M), P(U), P (MOU), P(MJU), P(E), P(MNE),...

A significant feature of municipal bonds is that: they must have maturities of at least 1 0 years. they pay interest to investors which is exempt from Federal income tax. they typically do not pay...

Fitting wrote a check for $800 and gave it to the payee. She then had second thoughts about the check. She contacted the bank at which she had her checking account about the possibility of stopping...

Brandon Stroud was driving a golf car made by Textron, Inc., to transport guests at Christmas party. The golf car did not have lights, but Textron did not warn against using it on public roads at...

David Dobrovolny bought a new Ford F- 350 pickup truck. A year later, the truck spontaneously caught fire in Dobrovolnys driveway. The truck was destroyed, but no other property was damaged, and no...

While driving on Interstate 40 in North Carolina, Carroll Jett became distracted by a texting system in the cab of his tractor- trailer truck. He smashed into several vehicles that were slowed or...

A college admissions officer takes a simple random sample of 100 entering freshman and computes their mean mathematics SAT score to be 458. Assume the population standard deviation is 116. Construct...

5 yean a ardearnip wartslo buld a showroom fatis estimated lo oost $2,000,000 tsets up a sinking fund that will be funded by payments at the end of each month The account can eam 9.6% aterest...

Please help with all of this I have numbered and made a list of the options given by each drop down box. I opened the very last drop down box in the picture. Please help with all questions. I have...