The Bisys Group will pay about $25 million to settle charges by the Securities and Exchange Commission that it engaged in improper accounting practices.
“This is a case study in internal control failures under earnings pressure,” said Mark K. Schonfeld, director of the SEC’s New York Regional Office, in a statement. The commission elaborated that the improper practices stemmed from a focus by former management on meeting aggressive, short-term earnings targets and from a lax internal control environment.
Though the practices occurred primarily in the company’s insurance services division, added the SEC, they also occurred elsewhere within the provider of financial products and support services.
According to the commission, from July 2000 through December 2003, former Bisys officers and employees engaged in a variety of improper accounting practices that resulted in an overstatement of pre-tax earnings totaling about $180 million for the three fiscal years ended June 30, 2003. Improper practices within the insurance division accounted for about $118 million of that amount, the SEC added.
Bisys ultimately restated its results for the 2001-to-2003 period.
The SEC complaint also alleged that Bisys received approximately $20 million in ill-gotten gains as a result of issuing convertible debt, stock, and options at prices that were inflated as a result of its violations.
Bisys agreed to settle the charges without admitting or denying the SEC allegations. In addition to the $25 million in disgorgement and prejudgment interest, the company also consented to a permanent injunction against further violations of the relevant reporting, books-and-records, and internal controls provisions of the federal securities laws.
“Led by the audit committee, our board and management have cooperated fully with the SEC staff, and we are pleased to have reached this resolution, which we believe is in the best interest of Bisys and its shareholders,” said chairman, interim chief executive officer, and president Robert Casale, in a separate statement. “We have improved controls and procedures in our accounting practices, replaced key individuals throughout the firm, and worked to foster high ethical standards and produce reliable financial reporting for our shareholders.”