CHARLOTTE, N.C. – Jill Westmoreland Rose, U.S. Attorney for the Western District of North Carolina, announced the filing of criminal charges against Swisher Hygiene, Inc. (“Swisher”) and a former senior-level corporate accounting employee in connection with accounting fraud at Swisher. Joining in the announcement is John A. Strong, Special Agent in Charge of the FBI in North Carolina. The criminal charges relate to Swisher’s scheme to defraud the investing public by materially misrepresenting Swisher’s financial position throughout fiscal year 2011.
U.S. Attorney Rose also announced that Swisher, a publicly-traded hygiene and sanitation solutions company based in Charlotte, has entered into a deferred prosecution agreement with the government, in which it accepts responsibility for the accounting fraud scheme and agrees to pay a $2 million monetary penalty.
Former senior-level corporate accounting employee John Pierrard, 49, of Delray Beach, Florida, has also agreed to plead guilty for his role in Swisher’s scheme to manipulate its books and records to fraudulently inflate reported earnings.
“Our financial markets depend on corporate executives and employees honestly reporting their financial results. When they fail to do so, we all suffer. Today’s filings make clear that my Office will continue to work tirelessly to root out financial fraud. And, we will continue to hold criminally responsible both corporations and the individuals who run and work at those corporations when they cook the books. The investing public deserves nothing less,” said U.S. Attorney Rose.
“When companies fraudulently misrepresent their earnings and overall financial strength through illicit accounting practices, not only do shareholders suffer, but the integrity of our financial market is put at risk. Corporate fraud at any level will not be tolerated,” said FBI’s Special Agent in Charge Strong.
According to the bills of information filed for both Swisher and Pierrard, the purpose of the accounting fraud scheme was to ensure that Swisher consistently reported that its adjusted earnings had met or exceeded executive management’s forecasts and to conceal the existence of the fraud from, among others, its auditors, the financial institution with which it had an ongoing credit agreement and the investing public.
According to court filings, when adjusted earnings were falling short of the target, Swisher and its conspirators used various methods to fraudulently manipulate the books and records in order to hit certain adjusted earnings targets. For example, court documents show that in some instances Swisher took expenses that were supposed to be booked to Swisher’s profit and loss statement and moved them to the balance sheet, fraudulently reducing expenses and thereby increasing income. In other examples, when acquiring companies, Swisher inflated certain liabilities that were established for contingent earn-outs, and then fraudulently reduced those liabilities, resulting in increased income. In other instances, court documents show that Swisher engaged in what is commonly referred to as “cookie jar” accounting, by inflating reserves during the process of acquiring other businesses and then fraudulently reducing those reserves and increasing income. For example, according to court filings, as part of the process of closing the books for the third quarter of fiscal year 2011, Swisher made several fraudulent entries in its books and records on a Saturday, weeks into the close process, increasing in one day its September adjusted “earnings” from $2.4 million to $3.5 million.
According to filed documents, the accounting fraud scheme began to unravel when a Swisher employee, identified as Executive A, fired the Controller after he refused to book a fraudulent entry. When the Controller’s allegations were brought to the attention of Swisher’s Audit Committee approximately a month later, it promptly commissioned an independent internal investigation.
The filed bill of information for Pierrard also describes a conspiracy to obstruct justice by misleading the investigators Swisher retained to conduct the independent investigation into the allegations of accounting fraud. Charging documents filed against Swisher and Pierrard note that during the ensuing audit committee investigation executives provided false and/or misleading information in an effort to cover up the accounting fraud scheme.
In the deferred prosecution agreement, Swisher accepts and acknowledges responsibility for the conduct of its former employees as described in the bills of information and agrees to cooperate fully with the United States in its continuing investigation of the fraud. The agreement also recognizes Swisher’s substantial cooperation with the United States to date, including the steps promptly taken by the audit committee upon discovery of the unlawful conduct to thoroughly investigate the unlawful conduct, to take remedial measures to address the unlawful conduct and to minimize the chance that such unlawful conduct would reoccur, as set forth in more detail in the agreement.
In the agreement, Swisher also agrees to pay a $2 million financial penalty, such penalty reflecting the fact that Swisher’s auditors have noted a substantial doubt that the Company’s ability to continue as a going concern and the concern that a greater fine would jeopardize the solvency of the company and put at risk the employment of its approximately 1,000 employees who were not involved in the wrong-doing.
Both bills of information charge one count of conspiracy to commit securities fraud, to falsify books, records, and accounts of Swisher, and to make misleading statements to Swisher’s auditors and accountants. Pierrard faces a maximum prison term of five years for the conspiracy charge. In determining a defendant’s actual sentence, the Court will consider the U.S. Sentencing Guidelines, which are not binding but provide advisory sentencing ranges. A plea agreement for Pierrard was also filed today and he is expected to appear before a U.S. magistrate judge to formally enter his guilty plea when the hearing is scheduled by the Court.
U.S. Attorney Rose praised the FBI for its outstanding work in leading the ongoing investigation that resulted in the filing of these charges. She also thanked the U.S. Securities & Exchange Commission for their assistance in the investigation.
Assistant U.S. Attorneys Mark T. Odulio and Maria K. Vento of the U.S. Attorney’s Office in Charlotte are in charge of the prosecution.