SEC Charges ‘Imaginary’ Cloud Computing Business with Financial Fraud

Grazed from Compliance Week. Author: Bruce Carton.

The SEC brings dozens of financial fraud cases each year. Usually the cases involve companies that, in an effort to make the numbers expected of them by investors, violate GAAP in order to recognize more revenue, hide expenses, inflate assets, etc. In most cases, of course, there is an underlying business at these companies that management is trying to make look better than it really is through financial shenanigans. But not always!

Sometimes, as in the case the SEC filed last week against Subaye, Inc. and James T. Crane, the supposed business is simply non-existent. In a complaint filed May 8, 2013, the SEC alleges that although Subaye represented to investors, its auditors and the SEC that it was operating a cloud computing business with thousands of customers, over 1,400 sales and marketing employees and revenues of $39 million, an investigation found that this business was completely "imaginary."…

The SEC alleges that Subaye’s scam began to unravel when it switched auditors at the end of 2010. Its new auditor, PricewaterhouseCoopers Hong Kong, was "much more thorough than Subaye was accustomed to," the SEC says, and demanded information that Subaye could not provide on its supposed customers, cash on hand, and services rendered to customers. After just a few months, PwC HK resigned, citing its concerns…

Read more from the source @ http://www.complianceweek.com/sec-charges-imaginary-cloud-computing-business-with-financial-fraud/article/293528/