On Thursday, June 28, 2018, Edward J. DiMaria of Fairfield County, Connecticut pleaded guilty for his role in orchestrating an accounting and securities fraud scheme that caused more than $25 million in shareholder losses. Specifically, DiMaria pleaded guilty to one count of conspiracy to make false statements to a public company’s accountants, falsify a public company’s books, records and accounts, and commit securities fraud. He also pleaded guilty to one count of making a materially false statements to the Securities and Exchange Commission (SEC).

 

DiMaria was the Chief Financial Officer (CFO) of  Bankrate Inc. – a Florida-based consumer financial services company.  During his time as CFO, he “used his position… to inflate the company’s earnings and mislead shareholders, auditors, and the SEC,” said acting Assistant Attorney General, John Cronan. As part of his guilty plea, DiMaria admitted that between 2010-2014, he directed and conspired to commit a complex scheme to artificially inflate Bankrate’s earnings through “cookie jar” or “cushion” accounting. In this accounting scheme, millions of dollars in unsupported expense accruals were purposefully left on Bankrate’s books and then selectively reversed in later quarters to boost earnings. DiMaria also admitted that he conspired with other Bankrate employees to misrepresent certain company expenses as “deal costs” in order to artificially inflate publicly reported adjusted earnings metrics. Lastly, DiMaria admitted that he made material false statements to Bankrate’s independent auditors to conceal the improper accounting entries and caused Bankrate’s financial statements filed with the SEC to be materially misstated.

DiMaria’s scheme caused more than $25 million in losses to Bankrate’s shareholders. In accordance with his plea agreement, DiMaria is required to pay $21 million in restitution to Bankrate’s shareholders. DiMaria is set to be sentenced on September 11, 2018. Hyunjin Lerner, Bankrate’s former vice president of finance, previously pleaded guilty for his role in the conspiracy and was sentenced to 60 months in prison.

Criminal Investigations Group Inspector in Charge, Daniel Adame – of the U.S. Postal Inspection Service – said that “[t]he consequences of this type of financial fraud scheme are far-reaching, affecting not only the economy of the United States, but also the world’s financial markets.”

SEC Whistleblower Program

While the case against DiMaria is a criminal case, fraud on investors is also subject to civil liability. Specifically, fraud on investors is actionable under SEC regulations and the SEC Whistleblower Program.  Under The Whistleblower Program, eligible whistleblowers who provide useful information to the SEC may receive monetary awards for their efforts.  If after an investigation the SEC determines an individual or entity has violated federal securities laws, it can bring suit seeking remedies such as monetary penalties, disgorgement of ill-gotten gains, and injunctions.  Eligible whistleblowers under the program are entitled to an award between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by other regulatory and law enforcement authorities.

The SEC whistleblower program, and its corresponding awards, have increased in recent years. Fiscal Year 2016 was a historic year for SEC whistleblower awards with 6 of the top 10 awards since the program’s inception issued in that year.  The momentum carried into 2017 with two more top 10 awards issued, $7 million and $5.5 million respectively.  Therefore, in the past two years (2016 and 2017), 8 of the 10 largest awards in the history of the SEC whistleblower program have been issued.  In total, over $25.6 million was awarded in eight separate actions in Fiscal Year 2017.

SEC Whistleblower Protections

The SEC also provides protection from retaliation due to reporting potential securities laws violations.  This means that employers may not discharge, demote, suspend, harass, or in any way discriminate against an employee in the terms and conditions of employment because the employee reported conduct that the employee reasonably believed violated the federal securities laws.  Employees who have reported a possible securities law violation and believe they have been retaliated against because of the report may be able to sue their employer in federal court and recover double back pay (with interest), reinstatement, reasonable attorneys’ fees, and reimbursement for certain costs in connection with the litigation.

Further, under the SEC whistleblower program, the identity of whistleblowers is strictly protected.  Therefore, whistleblowers may provide information and recover SEC whistleblower rewards while remaining anonymous.

For more information on securities laws violations, the SEC whistleblower program or SEC whistleblower protection, contact Frohsin Barger & Walthall.