Accounting & Tax

Indictments for Medical Manager Execs

Practices included so-called round-trip transactions allegedly used to create fraudulent revenues.
Stephen TaubDecember 16, 2005

The U.S. Attorney for the District of South Carolina has indicted 10 former officers and employees of Medical Manager Health Systems Inc. for allegedly participating in a conspiracy to fraudulently inflate the reported earnings of the company by more than $16.8 million between 1997 and 2001.

Medical Manager and its parent company, WebMD, have since changed their name to Emdeon Practice Services, a unit of Emdeon Corp.

The indictment charges the 10 individuals with conspiracy to commit mail, wire, and securities fraud, as well as conspiracy to commit money laundering, according to a regulatory filing.

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The former executives include Michael A. Singer, the former chief executive officer of Medical Manager, and two former finance executives of the company — Lee Robbins, onetime chief financial officer, and Charles L. Hutchinson, a former controller.

Company officials stressed that no members of Emdeon’s current management have been named in the alleged improprieties. Emdeon said it will continue to cooperate fully with the U.S. Attorney’s office.

Officials also noted that Emdeon will not need to restate results for any of the years covered by its financial statements.

Specifically, the charge accuses the 10 former employees with using fraudulent accounting practices to artificially inflate the quarterly revenues of Medical Manager in order to meet and exceed the expectations of financial analysts, and thereby fraudulently inflate the market price of Medical Manager and WebMD stock, according to the government announcement. These practices included so-called round-trip transactions allegedly used to pump up revenues for Medical Manager.

The maximum penalty on the fraud conspiracy is five years in prison and a $250,000 fine. The penalty on the money-laundering conspiracy is 20 years in prison and a $500,000 fine.

“Corporate executives are bound by the law to provide truthful information about their company’s finances to the investing public,” says Alice S. Fisher, assistant attorney general at the Justice Department’s criminal division. “The marketplace requires honest, full disclosure and accountability. The Justice Department will continue to aggressively pursue those executives who choose criminal fraud over responsible financial reporting as their way of doing business.”