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Blatant Fraud


Above is a link to an article released today about my previous employer that went bankrupt in June and 375 lost their jobs in total. $300MM in private investment and $70 in public funds were lost as well.

I know "The Daily Caller" is a politically charged news organizations but in relation to this class I would like to point you to page 4. To quote:

To quote:
Misleading finances
As December 2010 drew near, it became apparent that the cash strapped company may not make it to sign the DOE agreement because "virtually all sales had been stopped or cancelled," according to one internal source.
"Q2 2010 was a huge sales month but in October 2010 the proverbial shit hit the fan and customer complaints and internal testing came back to show that all product should be recalled if not simply replaced with working product," one source wrote in an email.

They obtained a bridge loan from Silicon Valley Bank to keep them on their feet until the DOE loan closed. As collateral for the bridge loan they put up their accounts receivable from sales as well as their inventory.
Except that the accounts receivable were fake, according to a source, as they were cancelled orders that were not reversed on the company's books, making it look like revenue was still flowing into the company when it wasn't.

"We collateralized the loan with fake [accounts receivable] (the customer had canceled the order so the revenue should have be reversed but we kept it on the books for the banks benefits)," wrote one source in an email to the DC News Foundation.

"In my professional opinion I think that was fraud because there was no accounts receivable, it was a cancelled sale," that same source later told the DC News Foundation in an interview.

Abound got the bridge loan from the bank, closed the loan guarantee with the DOE in December of 2010, and after the DOE loan guarantee went through the company fixed its books and prepared for an initial public offering.

"I was like holy shit. I can't believe they did that," said the source

In a nutshell we ignored Rev. Rec. rules, overstated income and A/R and collateralized the A/R for 60% to the bank for a $10MM 30 day bridge loan. In the end the loan was paid in full with an astonishing 10% interest rate (high risk) and we got the DOE loan. Only to lose it all 2 years later. Was this blatant fraud? Was it criminal? Do the means justify the ends? If you can read between the lines I think you know what my opinion is.

(Answer provided in approximately 150 words.)

Solution Preview

Yes, it was a blatant fraud and criminal act because the company manipulated its financials or accounting statements to obtain a bridge loan. Manipulation of accounts is a serious financial offence subject ...

Solution Summary

Blatant fraud is examined for a private investment.