The Securities and Exchange Commission has agreed to bar a former Arthur Andersen audit partner from appearing or practicing before the commission for at least five years.
In December 2002, the SEC charged former Andersen partner Robert A. Putnam with fraud and improper professional conduct in connection with his audits of HBO & Co., an Atlanta-based software developer for the healthcare industry, and Ebix.com, a Chicago-based developer of software for the insurance industry.
Putnam was the audit engagement partner for HBOC in 1997 and 1998, when senior management allegedly directed a financial reporting fraud scheme before the company merged in 1999 with McKesson to become McKesson HBOC. The SEC said that Putnam knew HBOC's accounting practices did not conform to generally accepted accounting principles and that the company overstated its reported pretax income during the first quarter of 1997 by 9.4 percent.
When the fraud was disclosed in April 1999, McKesson HBOC reversed $26.2 million worth of software sales transactions for the fourth quarter ended March 30, 1999, and $16.0 million for the prior quarters of the fiscal year. Shares tumbled from approximately $65 to $34, slashing the company's market value by more than $9 billion. McKesson HBOC later restated its financial results for the prior three fiscal years, reducing previously reported revenues by approximately $327.4 million.
Putnam was also Andersen's audit engagement partner for Ebix for the nine-month period ended Dec. 31, 1998. The SEC said he became aware that various customers claimed they were entitled to refunds of deposits on software and would not pay some of their outstanding invoices because they claimed Ebix's software did not function properly. Putnam did no further investigation, according to the SEC, and accepted management's claim that the software worked and the invoices were collectible. Ebix later restated its financials and reduced its software revenue by $3.4 million.
The SEC said that Putnam has submitted an offer of settlement with the SEC, which the SEC has decided to accept. Without admitting or denying wrongdoing, he has agreed to a cease-and-desist order, which bars him from appearing or practicing before the commission as an accountant. He may apply for reinstatement in five years.
