As if the recent takeover negotiations wasn’t enough drama, Blackberry is now facing a lawsuit from investors accusing the company of presenting misleading statements and inflating share prices. Blackberry CEO Thorsten Heins claimed in a press release that the company was recovering its market share, when in fact, layoffs were required and millions of dollars were lost. The lawsuit also claims that incorrect information was presented to the SEC regarding Blackberry’s stock. This problem can be summarized to a single department: financial accounting. Accounting fraud clearly occurred in the form of improper disclosure, leading to an overvaluation of the company and an incorrect forecast.
Why was the accounting fraud committed? In this case, there was undoubtedly a sense of situational pressure. There were issues in operations and revenues were decreasing for a long time, but the CEO must have been unprepared to reveal this information. Mr. Heins recognized that disclosing this information would have resulted in an immediate drop in share price. He perceived the opportunity to mislead investors for the time being and resolve these issues later. Regardless of the opportunity or the amount of pressure the company faces, fraud is still illegal and it will be interesting to see how this legal case progresses.
Links to the articles found here:
http://www.bloomberg.com/news/2013-10-04/blackberry-faces-investor-s-securities-lawsuit-in-n-y-.html