The former CFO of a company that produces electronic databases of archived information from publishers settled charges made by the Securities and Exchange Commission that, with the use of spreadsheet aids, he made fraudulent monthly and quarterly and accounting entries for more than five years.
As part of the alleged scheme, Scott Hirth, who was vice president of finance and CFO of the information and learning division of ProQuest Company from 1999 through 2005, created false documentation to back up the balances in accounts he allegedly manipulated, according to the SEC. His account-reconciliation spreadsheets, for instance, contained “hidden rows” so that false account entries didn’t show up when they were printed in hard copy, according to the complaint.
The former finance chief also allegedly covered up false information by rendering it invisible through the use of “white font,” or white-colored text, in the spreadsheets, the commission charged.
“Hirth’s deceptive intent in carrying out his fraudulent accounting scheme is further evident in a number of notes he authored,” according to the SEC. The notes referred to being “caught” for accounting problems, “cooking the books,” the possibility of going to “jail,” and the accounting scandals at “Enron and Worldcom,” the commission charged.
The motive for the fraudulent scheme was Hirth’s desire to rise through the management ranks to become the president of the division and, eventually, the chief executive officer of ProQuest, according to the SEC. The company’s senior management had identified him as a future leader of the company. Indeed, he served as acting president of the division during the summer of 2005. “Consistent with this desire, Hirth was fearful that his ambitions would not be realized if he reported [the division's] true financial position,” the SEC asserted.
Like the company, which also settled allegations with the SEC, Hirth neither admitted nor denied the charges. He agreed to pay about $420,000 to settle civil charges, was permanently enjoined from committing future violations of the federal securities laws, and consented to be permanently barred from serving as an officer or director of a public company and from practicing as an accountant before the commission.
The SEC also alleged that ProQuest failed to put together and run a system of internal accounting controls that might have prevented Hirth’s scheme and that the company failed to apply other basic accounting principles properly. Under its settlement, ProQuest, which was not fined, is permanently enjoined from future violations of the internal controls, books and records, and reporting provisions of the federal securities laws.
The SEC charged that Hirth made false accounting entries that materially inflated ProQuest’s reported pre-tax earnings for 2001 through 2004 and the first three quarters of 2005. The scheme ultimately cost the company more than $437 million in market capitalization and caused its stock price to drop from $29.41 to $12.31 per share between February and April 2006.
ProQuest, now known as Voyager Learning Co., was known as Bell & Howell Co. from 1907 to 2001. Before March 28, 2007, ProQuest was a publicly traded corporation on the New York Stock Exchange. On March 28 of that year, the NYSE suspended trading in ProQuest’s shares because it failed to file its 2005 annual report and certain of its 2006 fiscal quarterly reports in a timely way.
On June 30, 2007, ProQuest changed its name to Voyager, which currently trades its securities on the Pink Sheets Electronic OTC Markets.