Thursday, February 24, 2005, 5:00 to 6:00PM
Room 530
As accountants we learn to abide by strict ethical codes to avoid scandals like those of Enron and Worldcom. But what happens when that isn’t always the case? Perhaps we made an accounting or auditing mistake, or we were just reckless….what happens to us? Not long ago Reed Kathrein, J.D., a partner at Lerach Coughlin Stoia Geller Rudman Robbins, LLP, a leading security law firm, addressed this topic to a roomful of curious accounting students (ok, maybe 2 or 3 law students too).
The whole process begins with the feared subpoena. After someone is handed this document, the process is fast forwarded to a conference room with 12 jurors behind a camera. The lawyer’s job in this case is to make the accountant/defendant wince. The deposition must show different areas of liabilities. One area that must be proved is negligence on the part of the defendant, which is a breach of fiduciary care. Or the lawyer must prove recklessness and intent if financial statements are falsely misstated to investors. To show this, the lawyer will look for red flags in the deposition and the accountant’s workpapers. Companies now have to turn over their entire electronic mail boxes to the lawyers. The lawyers will scan the mail for any incriminating evidence.
So what does Mr. Kathrein advise us future accountants, CFOs, and controllers to do if we happen to find ourselves in this situation? TELL THE TRUTH! Don’t make up facts or try to destroy or cover up documents because it will only get you in more trouble. It is ok not to know everything. Also, think carefully and know your workpapers.
Remember this: If a lawyer cannot get you on negligence or recklessness and intent, then the lawyer will get you on lying and destruction of documents.
