Accounting & Tax

CFO of Merge Technologies Resigns After Probe

Anonymous letters prompted the company to hire outside investigators, who subsequently uncovered faulty revenue recognition practices.
Stephen TaubJuly 5, 2006

The chief financial officer and two other top executives of a medical-related software company resigned after the company completed a previously announced independent probe of its accounting and financial practices.

Merge Technologies Inc., which does business as Merge Healthcare, announced the resignation Monday of Scott T. Veech, chief financial officer, treasurer and secretary. William C. Mortimore, the company’s interim CEO and David M. Noshay, the company’s senior vice president of strategic business development, also resigned. The company’s stock dropped 41 percent on this news.

In previous announcements, the company had revealed that it was a target of an informal inquiry by the Securities and Exchange Commission, and that it would restate its results for the quarters ended June 30, 2005, and September 30, 2005, “due to certain material errors.” On Monday, the company said its audit committee had since determined that it would need to restate its results for the four years ended 2005 because of improper accounting and financial reporting practices.

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Merge said the restatements will primarily relate to the timing of revenue recognition, with a significant amount of revenue recognized in 2002 through early 2005 expected to be instead recognized in late 2005 and 2006.

Back in January, the company received a number of anonymous letters primarily alleging improprieties relating to its financial reporting, fulfillment of customer contracts and disclosure practices, according to its regulatory filing.

In response, the audit committee hired the law firm of Sidley Austin LLP and forensic accounting firm Alvarez & Marsal to conduct an independent investigation of the allegations.

According to the filing on Monday, Michael D. Dunham, chairman of the board, will serve as principal executive officer of the company on an interim basis. Brian E. Pedlar and Robert J. White were appointed as the company’s co-presidents and co-chief executive officers on an interim basis.