Don’t bank on it

The SEC has sued YourBankOnline, a software company, its president Pakie Plastino, and William Butcher, the firm’s external auditor. The charges allege that YourBankOnline and Plastino published a press release that massively overvalued the company’s main asset and prompted a major rise in its stock price, and subsequently submitted financial statements to the SEC which similarly overstated the asset’s value. Butcher is accused of not carrying out a proper audit before he signed off the accounts. The problems relate to the company’s purchase of Internet banking software, which it maintained was acquired for US$10 million in stock and cash. The SEC allege that YourBankOnline had only US$138 in cash available at the time and that the stock which it issued to obtain the software was valued at far less than US$10 million. In addition, the regulator asserts that such a price would have been excessive since the vendor had bought it only six months previously for about US$400,000. YourBankOnline issued a flurry of press releases to promote the system in the days after the purchase, which caused its stock price to advance from US$1 to US$32 in two weeks. The SEC claims further that the software was assigned too high a value in financial statements that it received in August 1999. It asserts that Butcher should have assessed the software’s worth with greater care given that effectively it was the company’s only asset. He is also alleged not to have followed Generally Accepted Accounting Principles (GAAPs) and to have misrepresented the company’s financial statements as compliant with GAAPs.