Stockwatch Daily

Former CFO sentenced for $96M (U.S.) accounting fraud

Swisher ex Kipp receives 4-1/2 years in jail

- By Mike Caswell

SWISHER HYGIENE Inc.’s former chief financial officer, Michael Kipp, has received 4-1/2 years in jail for an accounting fraud that led to the demise of the onetime Toronto Stock Exchange listing. He received the sentence in an appearance on Tuesday, April 10, before District Court Judge Max Cogburn in North Carolina. The judge also imposed two years of supervised release on Mr. Kipp.

The sentence stems from a scheme in which Mr. Kipp, 63, manipulate­d Swisher’s earnings in 2011. He and others went through the company’s books during three reporting periods that year, looking for ways to “scrub the

numbers,” as the judge previously put it. They were attempting to have the company meet predetermi­ned earnings targets. Had the company met those targets, Mr. Kipp would have been in line for an $88,000 bonus. (All figures are in U.S. dollars.) His efforts led to investor losses that prosecutor­s have calculated to be between $96-million and $400-million.

The 4-1/2-year jail term is a partial victory for Mr. Kipp, as prosecutor­s had sought 12 years in jail for him. Ahead of the sentencing, they described his crime as incredibly serious. After details of the fraud became public, Swisher suffered damage to its reputation, laid off employees and sold off assets. Eventually it delisted and

sold what remained of its business to a competitor.

Prosecutor­s had also asked that the judge impose a sentence that reflected the difficulty in detecting crimes such as his. In effect, they sought to have the judge make an example of Mr. Kipp. His fraud only came to light after a subordinat­e refused to go along with the scheme and reported it to the company’s auditor. Executives who contemplat­e such crimes must know that a substantia­l penalty awaits, prosecutor­s contended.

For his part, Mr. Kipp had sought a sentence of no more than a year. He said that he had already suffered the loss of his career and pointed out that he realized no financial gain from the scheme. He also contended that it was incorrect to place the entire $96-million loss at his feet. There were other factors that led to Swisher’s decline, such as the pace it was acquiring other companies, he claimed.

Also sentenced on Tuesday was Joanne Viard, the former director of external reporting at Swisher. She received two years in jail and two years of supervised release. Prosecutor­s had sought five years for her, saying that she used her prior experience working as an auditor to help with the fraud.

For her part, Ms. Viard had asked the judge to spare her any additional jail time, seeking a term of probation. She said that she had already suffered the loss of her career, her savings and her reputation. She pointed out that at the outset of the scheme, she was a 31-year-old mother of two who was expecting her third child. (She is now 38.) She was working in a newly establishe­d position and had no intention to defraud anyone.

Ms. Viard has already served seven months in jail for the scheme. After her arrest she was initially released on bond, but the judge revoked that bond after two alcohol-fuelled incidents. In the first, she was driving erraticall­y to her Florida home with two of her children in the car. A police report stated that she was drinking a beer, swerving into an oncoming lane and yelling at other drivers. There were no reported injuries.

In the second incident, police found her driving the wrong way on Interstate 75 outside of Miami with heavy damage to her vehicle. She attempted to flee from police, and ended up crashing into a building, causing visible structural damage. Police had to physically remove her from her vehicle to arrest her. (Ms. Viard is separately charged with assault of a law enforcemen­t officer, fleeing police and child neglect without great bodily harm. She has not yet stood trial on those charges.)

Judge Cogburn set out the details of the Swisher fraud after he convicted Mr. Kipp and Mr. Viard on June 20, 2017. He determined that Mr. Kipp, a certified public accountant, was the architect of the scheme. Ms. Viard, who was Swisher’s director of external reporting, was a willing participan­t, making many suggestion­s about ways to manipulate the earnings figures.

The fraud, as described by the judge, took place in the second, third and fourth quarters of 2011. Mr. Kipp and Ms. Viard directed accounting staff to make entries that were designed to ensure the company met its target for EBITDA (earnings before interest, taxes, depreciati­on and amortizati­on). Each quarter, they went through the books, looking for ways to “scrub the numbers.”

The scheme ultimately unravelled in the fourth quarter of 2011, when Swisher’s controller questioned an entry that appeared incorrect. Mr. Kipp fired the controller, but that fired controller then told the auditor what he had seen. This led to the auditor uncovering the fraudulent accounting entries.

While Mr. Kipp and Ms. Viard were the only defendants on trial, there was a third defendant, John Pierrard. He pleaded guilty before the trial and testified against the others. He received eight months of house arrest.

(SWI) Shares: 174,827,498

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