David G. Zilli, the former chief financial officer of Bon Secours Cottage Health Services, has settled Securities and Exchange Commission charges that he engaged in a fraudulent accounting scheme. A parallel criminal action was filed in U.S. District Court for the District of Maryland.
Zilli was the vice president of finance and CFO of Cottage Health, a subsidiary of Maryland-based non-profit hospital and healthcare company Bon Secours Health System Inc., from September 1998 through June 2003. During that time, alleged the SEC, he “created the false appearance of steady earnings growth at Cottage Health.”
According to the commission, Zilli made bogus manual journal entries that overstated the value of numerous assets and the operating income of Cottage Health and understated its liabilities. As a result, Bon Secours’ financials were cumulatively misstated by a total of $117 million.
Zilli’s misstatements materially inflated Bon Secours’ “increase in unrestricted net assets,” the equivalent of net income for a non-profit enterprise, by about $20.1 million (75 percent) in fiscal 2000; $15.4 million (31 percent) in fiscal 2001, and $17.9 million (270 percent) in fiscal 2002, according to the commission.
The SEC also alleged that Bon Secours overstated income from operations by roughly $22.9 million (106 percent) in fiscal 2000; $20.6 million (51 percent) in fiscal 2001, and $21.9 million (42 percent) in fiscal 2002.
In February 2004, Bon Secours restated its 2002 financials.
According to his settlement with the SEC, Zilli has agreed to be permanently barred from serving as an officer or director of a public company.