'Accounting Fraud' Penthouse Uncovered

Penthouse International Inc. has been charged with accounting fraud by the Securities and Exchange Commission, which alleges the pornography publisher and a former shareholder certified financial statements that had not been reviewed by an independent auditor, the Wall Street Journal reported.

Robert Guccione, the founder of Penthouse who resigned from the company in 2003, settled related SEC charges that he misled investors, without admitting or denying the SEC's assertions, the Journal reported.

The case stems from an alleged inflated quarterly result in March 2003, which contained an electronic signature attesting that the financial statements had been reviewed by then-chief executive and chief financial officer Guccione. In fact, the SEC said the report hadn't been reviewed by Guccione or the company's outside auditor and lawyers, the Journal reported.

The SEC claims that Charles Samel, formerly an executive and director at Penthouse, and Jason Galanis, a former shareholder, rigged the books for that quarter by including a $1 million payment on a multiyear business agreement that wasn't signed until the following quarter.

The March 2003 report was filed after the 2002 Sarbanes-Oxley Act required public company executives to attest to the accuracy of financial reports, the Journal reported.

As part of his agreement with the SEC, Guccione will pay no fine, but agreed to cease and desist from future violations. Mark Schonfeld, regional director of the SEC's New York office, told the Journal that Guccione didn't know the company's quarterly report was filed without his review, but didn't blow the whistle once he learned of it.

Regulators took issue with Penthouse's subsequent efforts to come clean saying their steps compounded the problem by certifying that its disclosure controls and procedures were adequate.

The SEC's lawsuit, filed in federal court in Manhattan, seeks to fine Penthouse, Samel and Galanis, and bar them from future accounting violations. Regulators also seek to ban Samel and Galanis from serving as officers or directors of a U.S. public company, the Journal reported.

Attorneys for Penthouse, Samel and Galanis weren't immediately available to comment.

Penthouse, known for publishing nude photographs of then-Miss America Vanessa Williams in 1984, has seen circulation slump in recent years, and its former parent, General Media, filed for bankruptcy protection in 2003, the Journal reported.

You may like these other stories...

OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
Plan ahead before you buy some shares in a stock mutual fund near yearend, when the fund is about to pay a dividend. It might be better to wait until after the fund goes "ex-dividend," that is, wait until after the...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.