An Auditor’s Duty to Scrutinize a Client’s Revenue Resulting from “Bill and Hold” Sales: A Legal Case Study of U.S. Securities and Exchange Commission v. Winemaster
Stephen Errol Blythe
Professor of Accounting and Business Law, College of Business, Tarleton State University, Fort Worth, Texas USA
https://doi.org/10.47191/jefms/v5-i6-26ABSTRACT:
This is a case study of U.S. Securities and Exchange Commission v. Winemaster, a federal cause of action filed in 2021. The case is ongoing and a final judgment has not been entered in this case. After the case was filed by the plaintiff Securities and Exchange Commission (SEC), two of the corporate officer defendants filed motions to dismiss. The court denied the defendants’ motions to dismiss the case, and the case meticulously explains why the defendants’ motions were denied. The specific issues discussed include: (a) legal elements of several types of securities fraud claims; (b) the effect of the Private Securities Litigation Reform Act upon the pleading of complicity of corporate officers in securities fraud; (c) how SEC Rule 10b-5 affects a company’s officers; (d) the legal requirements which would justify the inclusion of “bill and hold” (b&h) sales in the revenue of a company; (e) the legal duty of corporate officers to maintain a system of internal accounting controls; (f) whether the three corporate officer defendants were required to have accounting expertise in order to be held liable for securities fraud; and (g) implications for auditors emanating from this case.
KEYWORDS:
Securities fraud, “bill and hold” sale, overstated revenue.
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