Former CFO Pleads Guilty To Lying To Auditors
Former Osiris Therapeutics, Inc. CFO Philip Jacoby pleaded guilty to criminal charges stemming from the financial fraud at the company. U.S. v. Jacoby, No. 1:17-cr-00676 (S.D.N.Y. Filed Nov. 2, 2017). The charge on which the plea was based was for lying to the auditors, not the fraud at the company.
The SEC’s financial fraud action against Osiris Therapeutics, Inc. alleged the company and four of its senior executives engaged in financial fraud. SEC v. Osiris Therapeutics, Inc., Civil Action No. 1:17-cv-03230 (D. Md. Filed Nov. 2, 2017). See Lit. Rel. No. 23978 (Nov. 3, 2017). The Commission’s case centered on a scheme to hit certain financial metrics to sustain an upward trend in revenue. The complaint claimed that the firm and its four senior executives improperly recognized revenue with four different vendors over almost a two year period to continue a positive trend (here).
The conduct on which Mr. Jacoby’s plea was based stems from an October 2015 request by the firm’s auditors for additional documentation and information regarding the recognition of revenue in December 2014 from a vendor. The request was made in connection with an inspection by the PCAOB.
Mr. Jacoby furnished false and misleading information to the auditors in response to the request. Specifically, he and others prepared a memorandum from the company to the auditors to justify the recognition of the revenue from the distributor. The memorandum claimed that Mr. Jacoby discussed the product sale terms with the owner in a conference call. The owner agreed to purchase 933 units from the company for over $1 million. In fact there was no telephone call.
On November 5, 2015 Mr. Jacob also created a letter, backdated to December 29, 2014, that reflected an agreement between the company and the distributor. The same day Mr. Jacob sent the letter by email to the owner stating that he should write a “wonderfully warm and convincing email” about their several calls regarding the transaction noted in the letter.
Mr. Jacoby pleaded guilty to one count of making fraudulent statements to the auditors. Sentencing is scheduled for February 2, 2018.