Risk Management

Cornerstone Ex-CFO Settles with SEC

Case at propane company involved an allegedly fraudulent change in numbers after a failed attempt to verify account balances.
Stephen TaubMarch 10, 2008

A federal judge has signed off on a Securities and Exchange Commission settlement with the former finance chief of Cornerstone Propane Partners LLP, stemming from earlier civil charges that a division of the company fraudulently revised financial statements after a failed attempt to verify account balances.

Richard D. Nye, who had been vice president of finance and acting CFO of Cornerstone, agreed to pay a $25,000 civil penalty and to be barred from acting as an officer or director of a publicly held company for three years. Nye agreed to the settlement without admitting or denying the allegations of the complaint.

He was one among five former executives of Cornerstone — including four former finance executives — who were accused in September 2005 of engaging in financial fraud. The other four were former CEO Keith G. Baxter, former CFO Ronald J. Goedde, former controller Robert E. Ellington, and former divisional CFO Anthony W. O’Dell.

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The complaint alleged that during fiscal year 2000 and the first three quarters of 2001, a Cornerstone division engaged in a massive project to verify its account balances. But because the Cornerstone division was unable to substantiate millions of dollars of account balances, the SEC alleged, Cornerstone’s financial statements were not prepared in conformity with Generally Accepted Accounting Principles, and its financial statements were materially false and unreliable.

In addition, Cornerstone was accused of failing to disclose the potential effects that necessary adjustments to its accounts, once they were quantified, would have on its reported income; and its inability to properly consolidate accounts of its various divisions in light of the subsidiary’s accounting problems.

Also, the SEC alleged that Cornerstone issued a Sept. 28, 2001, press release that concealed the nature of write-offs related to the verification of accounts, falsely claiming that the write-off resulted from the sale of certain business units rather than from a division’s failure to properly record its accounts for several reporting periods.

Cornerstone Propane Partners emerged from Chapter 11 bankruptcy protection in December 2004 and changed its name to Titan Energy Partners in 2005.

In June 2006, Energy Transfer Partners L.P. acquired the propane operations of Titan Energy Partners LP and Titan Energy GP LLC.