Ex-Longtop CFO Blamed for ‘Foundation of Lies’
An investor lawsuit accuses a CFO of ignoring signs of fraud when he signed off on financial results, but the CFO says he believed they were accurate.
November 21, 2014 | CFO.com | US
The 2010 and 2011 financial results of Longtop Financial Technologies were a “foundation of lies,” an attorney for union pensioners and investors told jurors in the trial of a securities class action against the Chinese company’s former CFO.
Kimberly Justice said in her opening statement, Reuters reports, that David Palaschuk should be held liable for ignoring signs of fraud when he signed off on the results. Palaschuk resigned shortly after the New York Stock Exchange halted trading in Longtop in May 2011.
“The price of Longtop’s shares [was] artificially inflated on this foundation of lies,” Justice said.
The plaintiffs’ evidence, she said, includes an email Palaschuk wrote before he resigned in which he memorialized a conversation with Longtop CEO Weizhou Lian, reporting that Lian “informed me the company had been a fraud since 2004.”
But Palaschuk told jurors he certified Longtop’s financial statements because they had been audited and his team had completed procedures to verify them.
“I approved them because I believed they were accurate,” he said in testimony earlier this week.
Securities class actions usually settle before trial, with only 13 such cases having reached a verdict since 1995, according to Adam Savett, director of class action services at Kurtzman Carson Consultants, told Reuters.
The case against Palaschuk went to trial after a federal judge entered a $882.3 million default judgment against Longtop and Lian, neither of whom had appeared in court. Several similar suits involving accounting scandals at Chinese companies have been filed since 2011.
Longtop, a Hong Kong-based financial services software developer, was accused of securities fraud and auditing improprieties by U.S. regulators in 2011. Investors accused it of, among other things, exaggerating its cash balances and revenue, under-reporting bank loan balances and hiding employee costs in an off-balance-sheet entity.
In his opening statement, Palaschuk’s lawyer John Sylvia said his client acted responsibly and investigated analyst questions about Longtop’s accounting.
“They do not have any evidence Mr. Palaschuk made the challenged statements with reckless disregard, whether or not they were true,” Sylvia told the jury.