Falsifying financial statements is a serious criminal offense. Unfortunately, numerous company officers get incorrectly accused of doing it every year. In some cases, the financial statements are actually correct. In others, the information is incorrect but the people responsible for the misstatement did not make it intentionally or even know that it was inaccurate. However, federal regulators and law enforcement agencies are quick to levy serious accusations in an attempt to protect investors from relying on bad information when making investment decisions. Those criminal accusations can be difficult to defend against on your own.
The securities fraud defense lawyers at The Criminal Defense Firm have legally represented numerous corporate officers and accounting professionals who have been accused of falsifying financial statements. With our legal representation, many of them have achieved a range of favorable outcomes, from outright acquittals to dropped charges to drastically reduced sentences.
Put our highly experienced team on your side
Brian J. Kuester
Former U.S. Attorney
Former DA
Amanda Marshall
Former U.S. Attorney
Local Counsel
Joe Brown
Former U.S. Attorney
& Former District Attorney
Local Counsel
John W. Sellers
Former Senior Trial Attorney
U.S. Department of Justice
Local Counsel
Linda Julin McNamara
Former Chief, DOJ Appeals
Local Counsel
Joanne Fine DeLena
Former Assistant U.S. Attorney
Local Counsel
Aaron L. Wiley
Former Federal Prosecutor
Local Counsel
Roger Bach
Former Special Agent (OIG)
Timothy E. Allen
Former Senior Special Agent
Chris Quick
Former Special Agent (FBI & IRS-CI)
Kevin M. Sheridan
Former Special Agent (FBI)
Ray Yuen
Former Supervisory Special Agent (FBI)
How Financial Statements Can Be Falsified
Financial statements can be altered or falsified in just about any way imaginable. Some common falsifications are:
- Prematurely recording revenue or claiming income
- Claiming revenue for sales that did not occur or for contracts that were never finalized
- Changing the timing of revenue or expenses
- Leaving liabilities out of the statement
- Altering the value of an asset
- Skimming, or not reporting income as revenue on the books
Additionally, there are a wide variety of financial statements that can be affected, including the:
- Balance sheet
- Income statement
- Statement of cash flows
- Other accounting statements
These documents are generally skewed in order to:
- Exaggerate revenue and assets
- Underreport debts
- Downplay liabilities and other financial obligations
- Report income in ways that minimize the company’s tax liability
This can be done through either omission or misrepresentation. For example, the costs of pending litigation against the company can either be described in ways that are lower than reasonably expected or can simply be left off the financial statement. In either case, investors are led to believe that the company is safer to invest in than it really is, and other people and companies that rely on the company are tricked into thinking that it is healthier than it is. This can benefit the company or the people who are falsifying the records in several different ways, including:
- Attracting investors and increasing investment
- Keeping the company solvent and operating
- Helping the company get a loan on more favorable terms
- Hiding other forms of fraud
- Personal gain, such as if a chief executive officer’s compensation is based on the company’s stock price and falsifying the records would induce investment and make the price increase
Lots of Criminal Charges Can Follow
Depending on the particular course of conduct that is taken, numerous criminal charges can be filed over the falsification of financial statements at a company. These include charges for:
- Securities fraud
- Accounting fraud
- Tax fraud
- Bank fraud, if the falsified documents are used to apply for a loan
- Forgery, if perpetrators have to forge documents to falsify the records
- Mail and wire fraud, if the fraud involves mailing something or if communications are made over the phone or the internet
Additionally, once an investigation begins for purported financial statement fraud, it is not uncommon for investigators to find evidence of other financial crimes being committed as well, such as:
- Insider trading
- Embezzlement
- Corporate theft
- Check kiting
- Kickbacks
- Misappropriation
It is not uncommon for a bevy of charges to be filed against a variety of company officers and other employees, each of which can carry substantial prison time and huge criminal fines.
For this reason, it is essential to get on top of the situation and invoke your rights early in the process.
Possible Lines of Defense
The best legal defense strategy will depend on all of the circumstances surrounding your case. However, there are some best practices that suspects should be aware of and certain lines of defense that are more common than others.
Be Proactive
It is often a good idea to be very proactive during the investigation stage of cases allegedly involving falsified financial statements.
This typically means opening a line of dialogue with investigators and regulators and presenting them with exculpatory evidence that they may have overlooked in their quest to find incriminating facts or that they did not fully appreciate. In some cases, this can be enough to persuade them that further investigation is unwarranted and end the case before charges are even filed.
It can also mean making heavy use of any legal privileges that might exist that could insulate potentially damning details from the investigators.
Factual Challenges May Be Effective
It will be up to the prosecutors to prove that the financial statements were, in fact, falsified. A common line of defense to these allegations is that the information is actually true. This defensive strategy becomes extremely technical very quickly, but it can be an extremely strong defense, particularly if the allegations stem from information that is open to multiple interpretations.
Pros and Cons of Relying on the Lack of Intent Defense
A common line of defense that corporate officials and executives often want to use is that they did not intend to falsify the documents; the misinformation on them was a result of a mistake or a lack of knowledge.
While this might sound like a strong defense, it has some significant risks.
It is important to remember that the U.S. Securities and Exchange Commission (SEC) has several types of enforcement actions that it can use to pursue. Lots of fraud offenses, such as securities fraud, can be pursued as civil or administrative claims in addition to being charged as criminal offenses. Which type of enforcement action the SEC chooses will depend on the evidence uncovered during the SEC investigation.
Relying heavily on a lack of intent defense may beat back criminal charges, but they leave you wide open to legal liability in a civil or administrative case. While prison time will no longer be on the table in these types of enforcement actions, the financial penalties can still be crippling.
Frequently Asked Questions About The Criminal Defense Firm and Cases Involving Falsified Financial Statements
Who Tends to Get Charged With Falsifying Financial Statements?
Falsifying financial documents is a common charge for the following people to face:
- Accountants
- Tax preparation professionals
- Auditors
- Corporate officers, including CEOs
- Lawyers, particularly in-house corporate counsels
However, there are cases where other types of people are accused of falsifying records or being a part of a conspiracy to do so. Federal law enforcement agents tend to cast the net very wide when investigating these cases.
When Should I Hire a Defense Lawyer?
As soon as possible.
The early stages of an SEC investigation is often when a defense attorney with experience handling financial cases can do the most to protect your interests. In the best case scenario, an attorney can help you divulge information that explains away what appears to be incriminating evidence that investigators have unearthed. It is possible to convince investigators that there is nothing to see and to close their case without ever filing charges. This would not only save you from legal liability and the costs of a conviction or civil judgment against you – it would also save you from the stress and costs of a court case.
While there are strong benefits for hiring a lawyer right away, there is nothing to be gained from delaying. Investigations into falsified financial statements virtually never go away on their own. Additionally, delaying only puts the lawyer that you do end up hiring into a more difficult situation than if they were brought in immediately.
Why Should I Trust The Criminal Defense Firm With My Case?
There are numerous reasons to trust The Criminal Defense Firm with your defense in a case involving allegedly falsified financial statements. Perhaps the most important is the fact that we structure our firm a bit differently than other defense firms. This allows us to provide work product that comes from a more experienced attorney and gives you better access to the lawyers you expected.
Other law firms tend to structure their firms with a few partners and very experienced lawyers at the top, but then numerous junior associates and paralegals further down the ladder. While the firm touts the experience of its senior lawyers, it will be these junior associates and paralegals who perform most of the work on your case. Oftentimes, clients go to these firms in order to be represented by a senior associate, only to have their case delegated to junior ones. Many times, clients do not see the senior lawyer until the last days of their case.
At The Criminal Defense Firm, we only employ senior-level attorneys, many of whom previously spent years within the same federal law enforcement agencies that are pursuing your case. We cannot delegate your case to paralegals or junior associates because we do not have any.
We think that this strategy is why we have such a strong track record of successes both in court and outside of it.
Why Don’t You Call Yourselves the Best Fraud Defense Lawyers?
We would rather our prior clients do this sort of talking about us. Read their testimonials here.
The Criminal Defense Firm: Securities Fraud Defense Lawyers
If you have been accused of falsifying financial documents or think that you are under investigation for doing so, the earlier you get legal representation, the better. Call The Criminal Defense Firm at (866) 603-4540 or contact them online to get started on your defense today.