Financial fraud actions frequently involve the improper use of accounting principles such as the premature recognition of revenue or the incorrect capitalization of expenses, each of which will improperly boost revenue and ultimately profit. The Commission’s most recent case in this area differs from the more traditional cases. It centers on what amounts to a series of sham transactions used to boost long term debt. The scheme, which continued even after the executives executing it were forced to reveal the conduct in part, was designed to secure certain government funds for the company. SEC v. Massimino, Civil Action No. 2:19-cv-01374 (C.D. Cal. Filed Feb. 25, 2019).
Defendants Jack Massimino and Robert Owen were, respectively the CEO and CFO of Corinthian Colleges, Inc., a publicly traded operator of 125 for profit colleges. About 80% of the firm’s revenue came from the federal government through student loans and grants under Title IV of the Higher Education Act of 1968.