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Financial Restatement Due to Lease Misclassification Not Actionable
As internal control issues continue to emerge for public companies, one of the questions that a leasing or financial services company might likely be asking is what happens if we need to restate our earnings based on a misclassification of our leases as sales-type leases rather than operating leases. What would our exposure be?
A recent decision by the District Court for the District of Arizona, In re Hypercom Corp. Securities Litigation, No. CV-05-0455-PHX-NVW (July 5), may prove to be instructive in this regard.
A publicly traded technology company, Hypercom, announced that it was restating its financial statements for the first three quarters of 2004 because 3200 leases entered into by its UK subsidiary had been improperly accounted for as sales-type leases, rather than operating leases. This misclassification resulted in a premature recognition of $3.2 million in revenue and $2.1 million in net income. The company later filed a Form 8-K with the SEC, attaching a copy of its press release for that day, which stated, 'As previously disclosed, the significant internal control deficiency that caused the recent accounting reclassification of certain leases from sales-type to operating leases and gave rise to a restatement of 2004 interim period financial statements, represents a material weakness in internal controls over financial reporting as defined by PCAOB's Auditing Standard No. 2.' The same press release also stated that Hypercom expected its independent auditors to issue an adverse opinion with respect to Hypercom's internal controls over financial reporting. Shortly afterward, the company's stock fell by $1 per share, or 18.32%. This led to the resignation of the CFO and a lawsuit against both the company and CFO for alleged violations of '10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and in the CFO's case allegations that he violated '20(a) of the Exchange Act.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
Warehouse Liability: Know Before You Stow!
As consumers continue to shift purchasing and consumption habits in the aftermath of the pandemic, manufacturers are increasingly reliant on third-party logistics and warehousing to ensure their products timely reach the market.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.