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Mortgage Firm Comptroller Suspended From Accounting Practice

The SEC charged the former comptroller of a mortgage firm with violations of the antifraud and recordkeeping provisions of the securities laws. As alleged, the comptroller, at the direction of the firm's CEO, approved the use of an accounting treatment that did not comply with Generally Accepted Accounting Principles with regard to the recognition of the full gain on several sales of real estate immediately, when one or more of the criteria required by GAAP had not been met. To facilitate the real estate sales, the firm had financed all or nearly all of the sales prices to the buyers. Under GAAP, recognition of the full gain on these sales was not permitted until various criteria were met. One requirement was for the buyers to make their own substantial initial down payments demonstrating their commitments to pay for the properties. Despite this condition, the comptroller allegedly approved the immediate recognition of the full gain for the transactions even though he knew, or was reckless in not knowing, that such accounting treatment was a departure from GAAP and contrary to the advice the company had received from its auditor. The fraudulently-recorded income from the transactions allowed the company to report a net profit for the third fiscal quarter of 2002 and the 2002 fiscal year instead of a net loss.

Based on its findings, the SEC suspended the comptroller from appearing or practicing before the Commission as an accountant. Under the terms of the order, after a period of five years, the individual could submit an application to the Commission for reinstatement. The comptroller consented to the issuance of the order without admitting or denying any of the findings.

Release No. 34-55359 will be published in a forthcoming Report.