'Cookie Jar’ Accounting Case Heartens Lawyers

On January 8, 2002, the Securities and Exchange Commission (SEC) filed suit in the United States District Court for the District of Nebraska against the former chief financial officer and the assistant controller of Omaha-based InaCom Corporation.

InaCom was in the business of purchasing computers, customizing them and reselling them to businesses. Like many other dot-coms, it ran into financial difficulties and filed for bankruptcy in 2000. The SEC charged that the two former executives of the company had created a ‘cookie jar’ of money that they used to make the company appear profitable in 1999 when it was actually losing money. Among the specific charges are violations of the antifraud, periodic reporting, record-keeping, internal controls, and lying-to-auditors provisions of the federal securities laws.

The case heartened lawyers, who say they are often accused of cooking up the complaints in the hundreds of court complaints filed against corporations, usually alleging that shareholders lost money because they were misled about the performance of public traded corporations. Many of these lawsuits are dropped or settled before trial, with the law firms receiving substantial commissions and shareholders recovering only a portion of their losses. The lawyers say the SEC’s case helps improve their credibility.

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