ESI accounting case ends with plea of guilty
Ted Sickinger. Knight Ridder Tribune Business News. Washington: Aug 8, 2007.
Ted Sickinger. Knight Ridder Tribune Business News. Washington: Aug 8, 2007.
Abstract (Summary)
Aug. 8--With a guilty plea from the former controller of Electro Scientific Industries Inc., federal prosecutors on Tuesday brought to a close their long-running accounting fraud case against former executives of the Portland-based company.
To see more of The Oregonian, or to subscribe the newspaper, go to http://www.oregonian.com. Copyright (c) 2007, The Oregonian, Portland, Ore. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
Aug. 8--With a guilty plea from the former controller of Electro Scientific Industries Inc., federal prosecutors on Tuesday brought to a close their long-running accounting fraud case against former executives of the Portland-based company.
James Lorenz, 44, of Portland pleaded guilty to one count of making false statements to accountants of a publicly traded company -- ESI -- in connection with a scheme to inflate the Portland technology company's profits in 2002 and 2003. He will be sentenced Oct. 15.
The maximum sentence for the crime is 20 years in prison and a $5 million fine, but as part of the plea agreement, the government has agreed not to oppose Lorenz's request for 10 months of home confinement.
Lorenz was indicted in September 2004 along with former ESI Chief Executive James Dooley, who pleaded guilty in June to similar charges and will be sentenced in the fall.
The charges stemmed from a series of transactions Dooley and Lorenz allegedly undertook to bolster the company's results as it was buffeted by the tech downturn in 2002 and 2003. At the time, Lorenz was ESI's controller -- the chief accountant -- and Dooley was the chief financial officer and acting chief operating officer. Dooley also was a candidate for chief executive officer at the time, a position he eventually won, which was vacant because the company's longtime chief executive, Don Van LuVanee, had been forced out after suffering a stroke.
According to federal prosecutors, Dooley presented a plan to ESI directors in 2002 to return the company to profitability the following year. To deliver those results, prosecutors alleged that beginning in August 2002, Dooley and Lorenz conspired to reclassify items on the balance sheet, understate expenses and inflate earnings.
On Tuesday, Lorenz pleaded guilty of lying in December 2002 on a questionnaire that the company's auditor, KPMG, asked him to complete and sign as part of a quarterly review of the company's books. On the questionnaire, Lorenz indicated that there were no significant changes in the company's accounting policies for the quarter in question.
In fact, he knew that the company had recently changed the way it valued inventory on its books, which had increased ESI's net income for the quarter by $650,564, prosecutors said.
Lorenz's lawyer, Ronald Hoevet, of Hoevet Boise & Olson, said the accounting change was one that actually conformed with generally accepted accounting principles.
Assistant U.S. Attorney Allen Garten said the whole idea behind the quarterly questionnaire is to ensure consistency and transparency.
"If you're going to change the way you account for something, you have to disclose it," he said.
To see more of The Oregonian, or to subscribe the newspaper, go to http://www.oregonian.com. Copyright (c) 2007, The Oregonian, Portland, Ore. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
Aug. 8--With a guilty plea from the former controller of Electro Scientific Industries Inc., federal prosecutors on Tuesday brought to a close their long-running accounting fraud case against former executives of the Portland-based company.
James Lorenz, 44, of Portland pleaded guilty to one count of making false statements to accountants of a publicly traded company -- ESI -- in connection with a scheme to inflate the Portland technology company's profits in 2002 and 2003. He will be sentenced Oct. 15.
The maximum sentence for the crime is 20 years in prison and a $5 million fine, but as part of the plea agreement, the government has agreed not to oppose Lorenz's request for 10 months of home confinement.
Lorenz was indicted in September 2004 along with former ESI Chief Executive James Dooley, who pleaded guilty in June to similar charges and will be sentenced in the fall.
The charges stemmed from a series of transactions Dooley and Lorenz allegedly undertook to bolster the company's results as it was buffeted by the tech downturn in 2002 and 2003. At the time, Lorenz was ESI's controller -- the chief accountant -- and Dooley was the chief financial officer and acting chief operating officer. Dooley also was a candidate for chief executive officer at the time, a position he eventually won, which was vacant because the company's longtime chief executive, Don Van LuVanee, had been forced out after suffering a stroke.
According to federal prosecutors, Dooley presented a plan to ESI directors in 2002 to return the company to profitability the following year. To deliver those results, prosecutors alleged that beginning in August 2002, Dooley and Lorenz conspired to reclassify items on the balance sheet, understate expenses and inflate earnings.
On Tuesday, Lorenz pleaded guilty of lying in December 2002 on a questionnaire that the company's auditor, KPMG, asked him to complete and sign as part of a quarterly review of the company's books. On the questionnaire, Lorenz indicated that there were no significant changes in the company's accounting policies for the quarter in question.
In fact, he knew that the company had recently changed the way it valued inventory on its books, which had increased ESI's net income for the quarter by $650,564, prosecutors said.
Lorenz's lawyer, Ronald Hoevet, of Hoevet Boise & Olson, said the accounting change was one that actually conformed with generally accepted accounting principles.
Assistant U.S. Attorney Allen Garten said the whole idea behind the quarterly questionnaire is to ensure consistency and transparency.
"If you're going to change the way you account for something, you have to disclose it," he said.
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