Expert Witness Defends E-Commerce CEO Against Accounting Fraud Charges

This case involves the CEO of an e-commerce business specializing in digital payment processing. The CEO started the company with almost no money in a one-room office that only had one telephone. He grew the business to eventually become one of the largest providers of digital payment services in the United States. When the company went public, it expanded its operations overseas, employed approximately 15,000 people, and generated $900 million in revenue. The CEO regularly instructed his accounting teams to implement aggressive accounting practices to boost earnings reports if they fell short of Wall Street expectations. The lead accountant pushed the team to implement complex and sometimes experimental techniques to meet goals. The CEO was indicted for accounting fraud/forgery.

Question(s) For Expert Witness

1. Can a CEO defend himself against fraud charges if he requested his accountants to use aggressive accounting practices to boost the company’s financial position?

Expert Witness Response

The CEO in this case clearly relied on new marketplace trends to create a very successful business model for the company. Strong leaders like this CEO are often known for using strong hand tactics with their accounting staff. In many companies similar to this one, the accounting decisions are most likely made by the accountants themselves (not at the executive level), with many checks and balances along the way. If the CEO in this case was not the mastermind behind the financial decisions, he did not commit fraud. In many cases like this one, the CFO and other accountants may take measures to keep profits high and may conceal these tactics from the CEO. In this case, the main responsibility for finding the accounting errors would have rested with the auditors who failed to find the overstated earnings. This means that the CEO is not guilty of fraud in this case. Becoming a successful entrepreneur requires that a CEO take many risks—and often huge risks. The CEO in this case, may have been driven by his ego to control the company by taking risks with the company’s financial reports.