When Employees Steal, The SEC May Punish The Company And The CEO

In this week’s issue of Compliance Week, Tammy Whitehouse writes about the SEC’s recent enforcement action against Koss Corporation and Michael J. Koss, its Chief Executive Officer and former Chief Financial Officer. According to the SEC’s complaint, Koss Corporation’s former Principal Accounting Officer and its former Senior Accountant, engaged in a wide-ranging accounting fraud to cover up the PAO’s embezzlement of over $30 million from the company. No one should be surprised to learn that the PAO has already pleaded guilty to six counts of wire fraud. The court ordered her to pay $34 million in restitution and sentenced her to 11 years in prison. The SEC also filed this complaint against the two employees.

After discovering the embezzlement, Koss Corporation reported the occurrence to its shareholders and enforcement authorities. The company also amended and restated its financial statements for fiscal years 2008 and 2009 and the first three quarters of fiscal year 2010. The company is clearly the victim of a crime. It reported the crime and corrected its financial statements. According to the SEC, they also cooperated. Yet, the SEC filed a lawsuit against the company and its CEO. So why did the SEC feel compelled to punish the victims?

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