Many of us are, or I should more accurately say, were familiar with North Carolina-based Swisher Hygiene. They were the large, industrial cleaning products company responsible for the sanitation of large food processing facilities, factories, stadiums and other major venues. Now, the 
company has been acquired as it descended into financial ruin. Two of its executives have been convicted of securities fraud. If any case illustrates the consequences of bad choices, it is this scandal. The executives were convicted as the result of a securities fraud scheme dating to 2011.
Michael Kipp, a CPA and the CFO of the company and Joanne Viard, the Director of External Reporting, were found guilty of the following charges: conspiring to commit securities fraud, making false and misleading statements to auditors and falsifying the books. Kipp has also been convicted of wire fraud. Swisher Hygiene was a publicly traded company, therefore the FBI got involved as “irregularities” were discovered. The FBI stated as part of their indictment:
“These corporate executives were entrusted to fairly and accurately report the earnings of their employer; instead, they manipulated and falsified the numbers putting the hard-earned money of shareholders at risk and undermining the laws in place to protect our financial markets.”
Securities Fraud, In Plain Sight
The executives who have been convicted knowingly decided to make Swisher Hygiene appear to be more profitable than it was. In doing so, they deceived investors, auditors, executives and fellow employees – that’s securities fraud pure and simple. In order to carry out the deception, it was necessary for them to manipulate Swisher’s books and record. The altered books showed a company that was meeting targeted goals as opposed to reporting the true earnings. The fraud did not go through unnoticed.
As was apparently revealed in the proceedings, the controller of Swisher did the right thing when a fraudulent entry was discovered. The controller went to Kipp, who as CFO was ultimately the person entrusted with reporting the financial wellness of the company. When the controller went to the CFO, the CFO’s alleged response was:
“You’ll run it by me since I’m the chief accounting officer. I’m out of patience with this.”
The controller was later terminated by the CFO because the controller did not want to commit the unethical act of “booking” an entry that could not be substantiated with an actual order. Whether the controller was the one to report it or not, the audit committee was made aware of the internal problems. The audit committee found out about the firing and the reason for it, they immediately sought an independent internal investigation.
When the company re-filed the financial reports nearly a year after the federal investigation it was reported that: “Swisher had substantially overstated its earnings and significantly understated its losses during the relevant time period.”
Swisher was forced to pay a $2 million fine and admit to accounting fraud which immediately affected the stock price. In addition, another bad player was uncovered, a senior-level accountant who has also suffered penalties.
In 2015 Ecolab, a competitor of Swisher’s, purchased all of Swisher’s operations. Certainly, the fraud and penalties did not enhance Swisher’s decline. Their reputation among the investment community was finished. Securities fraud has a way of creating consequences that are hard, if not impossible, to recover from.
Though the securities fraud was initiated in 2011, it has not been until 2017 when the charges have formally come down. Both Kipp and Viard face prison sentences for the conspiracy charge beyond that Kipp is facing substantial prison time for securities fraud, wire fraud and bank-fraud.
Pressures Accepted and Resisted
Unethical behavior often creates heroes as well as villains. The CFO was a CPA. He knew what he was doing was unethical. His Director of External Reporting was most probably a CPA, or in the least, as part of a publicly-traded company, she knew her responsibilities to the shareholders, management, employees and board. My guess is that despite her credentials and her knowledge of good ethical practices, she was somehow pressured by the CFO as was the senior-level accountant. This is an extremely valuable lesson.
When an employee is swayed by another unethical employee, even when it is the employee’s boss, the employee who is swayed is complicit as well. The defense of “I was only following orders,” holds no weight. No one wants to be fired from a job, but there are times when there are far worse outcomes.
The hero was the whistle blowing controller. There are no records of how it turned out after the firing. What I can say, it that the controller is exactly the kind of person who understands choices and consequences and who will one day make a fine CFO.
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Making the choice to do the right thing, knowing that the likelihood is that it will result in your firing, is difficult indeed.