Home » ACCOUNTANT » They Wield Their Personal Knowledge of Criminal Activity Like A Superpower

They Wield Their Personal Knowledge of Criminal Activity Like A Superpower

By Stacie Clifford Kitts, CPA

I have to say that I am completely mesmerized by convicted felons turned white-collar fraud fighters.  I mean they’re like freakishly out-of-place anti-heros wielding their personal knowledge of criminal activity like a superpower.

Tell me, who better to call out the bad guy, then another bad guy. Frankly, If I had my way, every single accountant would be required to sit through a semester of fraud “how’d we do it”, hosted by someone who had pulled off a major financial scam.  

But I digress; the real reason for this post is to discuss my experiences working alongside a group of people who unknown to the rest of us decided to manipulate the financial statement results of a then public company. The company- Bio Clinic a subsidiary of Sunrise Medical -the year 1995’ish. 


I’ve had very few experiences that I would describe as truly surreal. But the day I watched a young woman dressed in a crisp black suit dip her hand into the Corporate Controllers wastebasket pull out a handful of discarded paper and then begin making notes on a clipboard, I thought, what the heck – that’s not right.  


In fact, it really wasn’t right. For starters, the executive floor looked like a crime scene. Heck with all the offices taped off, the “do not enter” notices posted on the doors and a group of people dressed like “men in black” moving in and out of the executive suite like a flock of birds, I suppose it was.  

To describe my response to this scene as shocked or even confused would be a ginormous understatement. Honestly, at the time, I didn’t know what to think or to do. I began to walk along the hall peering into offices looking for a familiar face. Naturally, I was looking for someone who could explain what was happening, but all I saw where strangers with solemn expressions engrossed in conversation and boxing up offices, right down to the day planners on the desk and the trash in the wastebasket.   

But strangely, no one ever stopped me, or even asked me what I was doing there. These bizarre invaders were so focused on their mysterious task that they were completely oblivious to my presence.   

Nevertheless, I was exactly where I was supposed to be, which was headed down the hall toward my office so I could start my workday as a young staff accountant, responsible for the state and local tax filings of this company.  

I don’t know – maybe I should have paid more attention to what was going on, but as a full-time college student and a mother of three, I had very little time to do anything but keep my head down, do my job, and hurry home. Besides, I had never experienced anything as nefarious as a major financial scandal. So I didn’t have any reasons, let alone skills to recognize the situation for what it was – a huge cluster (you know what) and the beginning of the end for Bio Clinic and the facilitator of what turned out to be a nearly 20 million dollar fraud.

Now, the men (and woman) in black hung around for a few days but as mysteriously as they arrived they disappeared moving their investigation offsite to a place they jokingly called the “war room.” Overtime the investigation and resulting restatement of the financial statements was completed, the board of directors voted to shut down the Bio Clinic division, and the employees either were let go or transferred to other related companies. I had the unique distinction of being the very last employee of Bio Clinic- after all – the taxes still needed to be filed and amended returns needed to be prepared.

Funny enough, throughout the entire process, I never did find out about all the criminal details of the scandal. It was several years later when I found the SEC’s ACCOUNTING AND AUDITING ENFORCEMENT Release, when I learned of all the sneaky things that were going on. In retrospect, the document did offer some interesting a-ha moments. 

For instance, it explained why I was reprimanded for asking questions about unexplained amounts that appeared in some balance sheet accounts. Or why the computer generated interdepartmental profit and loss statements used for budgeting purposes did not foot. 

This whole experience did offer me some interesting insight though – sort of like valuable fraud training that most CPA’s just don’t have. The most important thing I learned was to watch for a person’s demeanor – for instance, to ask more questions when someone’s reaction to a benign inquiry is aggressive or weird. Extreme defensive or argumentative reactions over financial statement treatment are a sure sign that something is amiss, after all its only numbers and they are what they are. Throughout my twenty years plus of being an accountant, I would have to say that when I have come across a client who was uncooperative or who intentionally held back information, or who was consistently changing accountants, there were problems with the accounting. 


Recently I wrote a post Sam Antar “It takes one to know one” and He Knows Patrick Byrne and I have received some interesting feedback. One friend in particular wanted to know why I was so sure that Sam had the answers. Apparently, there is a bit of debate about who the good guys are and who the bad guys are in this ugly online war.

Now, if I am getting this right, Patrick Byrne is the CEO of Overstock.com and a purported owner of a website called Deepcapture.com. The purpose of Deepcapture is to expose the short sellers who are trying to make money off the decline in value of Overstock.com. If you don’t know, what short selling is you can read about it here.

But really, what could be more interesting and telling than this disclosure from Sam Antar:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980’s. I committed my crimes, simply because I could.

If it weren’t for the efforts of the FBI, SEC, Postal Inspector’s Office, US Attorney’s Office, and class action plaintiff’s lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I will probably end up joining corporate miscreants such as Patrick Byrne in hell. In any case, exposing corporate crooks is a lot of fun for a forcibly “retired” crook like me and analyzing Overstock.com’s financial reporting is a forensic accountant’s wet dream.

KPMG’s predecessor firms Main Hurdman and Peat Marwick Main were Crazy Eddie’s auditors. KPMG has sponsored at least two of my free speaking engagements to colleges and universities.

Well, obviously I don’t have any particular insight about who the bad guy is, but I do know this, Sam makes his living calling out bad guys and teaching people how to recognize him – the criminal element. I just don’t see why it would benefit him to intentionally call out people who he didn’t believe were crooks. After all, who would hire him as an expert if his ability turned out to be something else. I just don’t see it. And besides, I do see some elements of what makes me wary when I read about the debate.

Who really knows…I guess time will tell.  If you want to know more about Deepcapture, I think this story is interesting if a little bizarre. “Story of Deepcapture” . 


For those of you who might be interested, I have included the SEC’s findings of the shenanigans going on at Bio Clinic in the information below:


1. Summary

During Sunrise Medical’s fiscal years 1994 and 1995, 3 Robert S. Barton (“Barton”), vice-president of finance for Bio Clinic Corporation (“Bio Clinic”), one of Sunrise Medical’s operating divisions, orchestrated a scheme to understate Bio Clinic’s expenses by recording fictitious assets and improperly decreasing liabilities. He did this to ensure that Bio Clinic met the earnings targets previously agreed upon between Bio Clinic’s management team and Sunrise Medical’s corporate management team. Sharon Longview (“Longview”), Bio Clinic’s assistant controller (and, later, controller) and Christie Rockwood (“Rockwood”), Bio Clinic’s accounting manager, helped Barton implement the scheme. Vicki Kranawetter (“Kranawetter”), Bio Clinic’s manager of information systems, and Luther Dale Robinson (“Robinson”), Bio Clinic’s outside computer consultant, changed Bio Clinic’s accounting software at the request of Barton and the others to conceal the improperly-recorded accounting entries.

By the end of fiscal year 1995, Barton and the others had reduced Bio Clinic’s reported expenses by at least $19.6 million. The periodic reports that Sunrise Medical filed with the Commission for fiscal years 1994 and 1995, and the earnings announcements it made for the same periods, materially overstated its pre-tax earnings by over 16% in fiscal year 1994 and over 40% in fiscal year 1995. 4

As a result of the improper conduct at Bio Clinic, Sunrise Medical violated the periodic reporting, internal controls, and recordkeeping provisions of the federal securities laws. 5

2. Respondent

Sunrise Medical is a Delaware corporation with its principal executive offices in Carlsbad, California. Through its various operating divisions, Sunrise Medical designs, manufactures, and markets medical devices for institutional and retail customers. Its net sales, as restated, for the fiscal year ending June 30, 1995, were $602 million. Its common stock is registered with the Commission under Section 12(b) of the Exchange Act and listed on the New York Stock Exchange. During all relevant times, Sunrise Medical was required to file reports with the Commission pursuant to Section 13(a) of the Exchange Act.

3. Other Relevant Individuals and Entities

a. Bio Clinic , during all relevant times, was a wholly-owned subsidiary of Sunrise Medical with facilities in Ontario, California, and one of Sunrise Medical’s seven significant operating divisions. Bio Clinic designed, manufactured, and marketed pressure management devices (such as disposable foam mattress overlays and inflatable air beds) for institutional and retail customers. Bio Clinic accounted for twenty-one percent of Sunrise Medical’s net sales in fiscal year 1995.

b. Comfort Clinic , during all relevant times, was a division of Bio Clinic with facilities in Atlanta, Georgia. Comfort Clinic designed, manufactured, and marketed mattress pads and pillows for retail customers.

c. Robert S. Barton , 41, was the vice-president of finance of Bio Clinic from September 1989 to December 1995, and the vice-president of operations of Comfort Clinic from March 1995 to December 1995. Barton is a Certified Public Accountant licensed to practice in the State of Texas.

d. Sharon Longview , 36, was the assistant controller of Bio Clinic from September 1989 to January 1994, and controller from January 1994 to December 1995.

e. Christie Rockwood , 48, was the accounting manager of Bio Clinic from 1986 to December 1995.

f. Vicki Kranawetter , 34, was the manager of information systems of Bio Clinic from May 1994 to December 1995.

g. Luther Dale Robinson , 51, is the owner of Universal Information Systems, which provided, and supported, accounting software to Bio Clinic during 1994 and 1995.

4. Discussion

a. Background

Senior management at Sunrise Medical establishes an annual earnings bonus target for each of Sunrise Medical’s operating divisions, including Bio Clinic, based upon an annual profit plan. The process requires each operating division to submit to corporate management a proposed annual profit plan, including detailed monthly and quarterly revenue, expense, and earnings projections. Corporate and division management then discuss and agree upon the proposed profit plan, making it the basis for annual bonus targets. Annual awards under the bonus program are made to division management (including Barton, Longview, Rockwood, and Kranawetter) when that division’s earnings exceed the prior year’s earnings, and payouts increase in a linear fashion as the division meets or exceeds its annual profit plan.

At all relevant times, Bio Clinic reported its financial results, consolidated with those of Comfort Clinic, its own division, to Sunrise Medical every month, including variances to the monthly projections under the profit plan. Sunrise Medical used these monthly reports to calculate its financial results, prepare its periodic reports to the Commission, and make earnings announcements to the public.

Fiscal year 1993 represented a transition in Bio Clinic’s business. Bio Clinic’s primary products had been various types of disposable foam bedding used for medical purposes. By 1993, these products were becoming commodity items, and Bio Clinic began to experience greater competition, causing the profit margins on these products to drop substantially. In anticipation of this trend, Bio Clinic had begun to manufacture computer-controlled, inflatable air beds, and had established a nationwide network of thirty-eight service centers to rent or sell these beds to healthcare institutions. Unlike the disposable foam bedding, the air mattresses were expensive and difficult to maintain. In fiscal year 1994, Bio Clinic started reducing its daily rental rates on the air products at the same time that it was aggressively cutting prices on its foam retail business to stimulate more sales. As a result of these unfavorable pricing developments, margins decreased and Bio Clinic began to have problems meeting its profit plan, even though its sales grew rapidly during this period — from $76 million in fiscal year 1993 to $124 million in fiscal year 1995 (as restated).

b. Hiding Expenses in Accounts Receivable and Property and Equipment

(i) Monthly Entries

Barton reviewed preliminary versions of Bio Clinic’s monthly financial statements before they became final. Beginning in fiscal year 1994, before forwarding the financial statements to Sunrise Medical, Barton met with Longview or Rockwood, or both, and instructed them to reclassify a variety of expenses as assets. These expenses involved primarily costs associated with manufacturing foam products and air beds. 6 No accounting justification existed for recording these expenses in this manner. The resulting reduction in expenses generally enabled Bio Clinic to meet its earnings targets despite the financial problems it had begun experiencing. Barton, Longview, and Rockwood continued to record expenses as assets through fiscal year 1995.

Barton sometimes decided which expense accounts to decrease and asset accounts to increase. At other times, he told Longview to reduce a certain category of expenses by a certain amount, leaving it to her to determine which specific accounts to decrease or increase. After these adjustments had become routine, Longview often showed Barton lists of expenses that she proposed to transfer to asset accounts. Barton and Longview then told Rockwood which expenses to transfer to asset accounts and Rockwood recorded the adjustments in Bio Clinic’s books and records. They sometimes instructed Rockwood to move falsely recorded amounts from one asset account to another if they felt that the amounts appeared too large.

In March 1995, Barton received a promotion to vice-president of operations for Comfort Clinic. He remained in his position (in an acting capacity) as vice-president of finance for Bio Clinic. Barton began spending most of his time at Comfort Clinic’s facility in Atlanta. During his absences from Bio Clinic, Longview and Rockwood continued to record expenses as assets, at Barton’s instructions.

(ii) Aggregating and Concealing the Improperly-Recorded Expenses

Near the close of fiscal year 1994, Barton, Longview, and Rockwood aggregated the expenses that they had improperly recorded into two asset accounts on Bio Clinic’s general ledger: accounts receivable and property and equipment. This created discrepancies between Bio Clinic’s general ledger and its accounts receivable and property and equipment subsidiary ledgers. To avoid detection with respect to the accounts receivable discrepancy, Barton, Longview, and Rockwood increased the total on the last page of the accounts receivable subsidiary ledger so that the subsidiary ledger appeared to reconcile with the general ledger. The total reflected on the subsidiary ledger was therefore greater than the sum of the detailed customer accounts listed on the subsidiary ledger. 7 These changes required alterations to Bio Clinic’s accounting software that were made by Kranawetter, the manager of Bio Clinic’s information systems.

To address the property and equipment discrepancy, Barton, Longview, and Rockwood made line-item entries on the property and equipment subsidiary ledger to correspond to the amounts by which they had increased the general ledger. They made some of these entries appear to represent specific property and equipment. 8 Because of these fictitious assets, the property and equipment subsidiary ledger appeared to reconcile to the general ledger. Fearing that the fictitious line-items on the property and equipment subsidiary ledger might come under the auditors’ scrutiny, Barton, Longview, and Rockwood asked Kranawetter to suppress the printing of the line-items on the subsidiary ledger that represented the fictitious property and equipment. Thus, the total on the property and equipment subsidiary ledger did not accurately reflect the sum of the printed detail.

Sunrise Medical’s auditors received copies of Bio Clinic’s altered subsidiary ledgers for accounts receivable and property and equipment. By the end of fiscal year 1994, Barton, Longview, and Rockwood had overstated Bio Clinic’s accounts receivable and property and equipment by at least $3.5 million and $2.3 million, respectively.

During fiscal year 1995, Barton, Longview, and Rockwood continued to hide expenses in asset accounts. In May 1995, Rockwood created a fictitious customer account in the accounts receivable subsidiary ledger into which she placed what, by then, amounted to about $8.8 million of improperly-transferred expenses. Kranawetter arranged for Robinson (Bio Clinic’s outside computer consultant) to program Sunrise Medical’s accounting software to suppress the printing of the fictitious customer account, while still including the amount in the overall total for accounts receivable. Barton, Longview, and Rockwood also continued the suppression of the false assets on the property and equipment subsidiary ledger that they had begun during fiscal year 1994. By the end of fiscal year 1995, the overstatement of accounts receivable and property and equipment due to the improperly-transferred expenses had reached $8.8 million and $4.9 million respectively.

(iii) Discovery of Discrepancies

An internal auditor employed by Sunrise Medical performed certain of the audit procedures at Bio Clinic in connection with the fiscal year 1995 audit of Sunrise Medical performed by Sunrise Medical’s independent auditor. As part of these procedures, the internal auditor manually added the line-items on the accounts receivable and property and equipment subsidiary ledgers. In doing so, the internal auditor discovered a discrepancy of several million dollars between the total of the line-items and the total actually reflected on the subsidiary ledgers. Unbeknownst to the internal auditor, this discrepancy resulted from the suppression of the fictitious assets when the ledgers were printed. When the internal auditor asked for an explanation, Barton and Kranawetter told the internal auditor that Bio Clinic was in the process of changing accounting software (which was true) and that the ledgers had come from a test batch of data that had been incomplete (which was false).

The internal auditor asked that Bio Clinic provide copies of the subsidiary ledgers that correctly totaled. To provide such a copy of the property and equipment subsidiary ledger, Rockwood, at Barton’s instruction, asked Robinson to undo the suppression of the fictitious assets on the subsidiary ledger. Then, at Longview’s suggestion, Rockwood, with Robinson’s help, changed the name of the largest fictitious asset account from “Overhead A” to “Soft Goods.” Because Longview and Barton had previously given the auditors a rationale (which the auditors had accepted) for capitalizing costs arising out of the manufacturing of soft goods, they felt it less likely that the auditors would test an asset account bearing that name. Rockwood, with Longview’s assistance, also broke up another fictitious asset account into eight to ten smaller amounts, hoping that the internal auditor would not test them. Rockwood gave the internal auditor a copy of the altered subsidiary ledger.

Providing the internal auditor with an accounts receivable subsidiary ledger that correctly totaled posed a more difficult problem. The fictitious customer account, which had previously been suppressed when the subsidiary ledger had been printed, contained about $8.8 million of improperly-transferred expenses and bore the customer name “Miscellaneous.” After much consultation with the others, Barton decided to eliminate the fictitious customer account and replace it with invoices that Bio Clinic customers had already paid. Rockwood and Longview then asked Robinson to perform the programming necessary to include paid invoices in the subsidiary ledger and make them appear as if they were open receivables. Robinson, in consultation with Kranawetter and Rockwood, did so. Robinson needed over a week to complete the programming. Longview gave the falsified subsidiary ledgers to the internal auditor.

The falsified accounts receivable subsidiary ledger posed yet another problem because of the inclusion of invoices that had already been paid. The audit procedures planned by Sunrise Medical’s independent auditor included the confirmation of a sample of the accounts receivables with Bio Clinic’s customers. Any customer that had already paid an invoice would obviously not confirm that it still owed the invoice amount. The rush surrounding the completion of the audit offered Barton an unexpected solution – a person on the internal audit team allowed Longview and one other Bio Clinic employee to fax the confirmation requests to the sample of Bio Clinic’s customers. After consulting with Barton, Longview inserted blank pages into the fax machine instead of confirmation requests for those customers that had in fact already paid the invoice purportedly to be confirmed. She then took the facsimile transmission reports printed by the facsimile machine (indicating that the facsimile transmission had been successful), attached them to the real confirmation requests, and showed them to the auditors as proof that the she had faxed the confirmation requests.

c. Inventory Overstatement at Comfort Clinic

In the second quarter of fiscal year 1995, Barton, Longview, and Rockwood learned that between $2.5 to $3 million of the inventory recorded at Comfort Clinic was not supported by Comfort Clinic’s physical inventory counts. Barton allowed this amount to continue to be recorded as inventory. By fiscal year end 1995, the inventory overstatement had grown to $4.9 million. Barton, with the assistance of Longview, concealed this overstatement by creating a false inventory report for Comfort Clinic. Rockwood altered recorded inventory amounts for different Comfort Clinic locations so that only those locations at which the auditors had not observed physical inventory counts were overstated. Because of the inventory overstatement, Sunrise Medical’s inventory and pre-tax earnings were overstated by $4.9 million for fiscal year 1995.

d. Sham Rebate

Sunrise Medical’s financial statements understated accounts payable and expenses by almost $1 million as a result of a sham rebate that Barton created with the assistance of one of Comfort Clinic’s suppliers. In an effort to ensure that Bio Clinic attain its fiscal year 1995 earnings targets, Barton contacted one of Comfort Clinic’s suppliers to obtain a rebate of $1 million for purchases Comfort Clinic had already made in the fiscal year. The supplier, however, was willing to provide a rebate on Comfort Clinic’s past purchases only if Comfort Clinic accepted a price increase on purchases made in the next fiscal year to offset the rebate. Barton agreed to the supplier’s condition and executed a side letter to this effect. Without the side letter, the agreement between Comfort Clinic and the supplier appeared to be a legitimate rebate. Barton recorded the rebate as a decrease in expenses for fiscal year 1995 without disclosing to Sunrise Medical or its auditors that the supplier had tied the rebate to a price increase on future purchases. 9


Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities, such as Sunrise Medical, to file annual and quarterly reports with the Commission on Forms 10-K and 10-Q, respectively. These periodic reports must contain, among other things, disclosures concerning the issuer’s assets, expenses, and earnings. Rule 12b-20 under the Exchange Act requires that these reports also contain such other information as is necessary to insure that the statements made in those reports are not materially misleading.

The filing of a periodic report containing materially false or misleading information violates these provisions. See , S.E.C. v. Savoy Industries, Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied , 440 U.S. 913 (1979) (Section 13(d)); S.E.C. v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975) (Section 13(a)). A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important. See Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988) (Rule 14a-9); Savoy Industries , 587 F.2d at 1165-1166. No showing of scienter is necessary to establish a violation of Section 13(a) and the periodic reporting rules thereunder. See Savoy Industries , 587 F.2d at 1167; S.E.C. v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978). The same is true of Rule 12b-20. In the Matter of Curtis L. Dally , Exchange Act Release No. 39144, 65 SEC Docket 1540, 1544 (September 29, 1997). Sunrise Medical violated Section 13(a) and Rules 13a-1, 13a-13, and 12b-20 by filing annual reports on Form 10-K for its fiscal years 1994 and 1995, and quarterly reports on Form 10-Q during each of those years, that materially overstated its earnings.

Section 13(b)(2)(A) of the Exchange Act requires that reporting issuers make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and dispositions of its assets. Rule 13b2-1 thereunder prohibits issuers from directly or indirectly falsifying or causing to be falsified any such book, record, or account. Sectionof the Exchange Act requires reporting issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. As with Section 13(a), no showing of scienter is necessary to establish a violation of Sections 13(b)(2)(A) and 13(b)(2)(B), or Rule 13b2-1. S.E.C. v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 749 (N.D. Ga. 1983); In the Matter of Curtis L. Dally , Exchange Act Release No. 39144, 65 SEC Docket 1540, 1544 (September 29, 1997). Due to the understatement of expenses and cost of sales described above, Sunrise Medical’s books and records contained false and misleading entries relating to, among other things, accounts receivable, property and equipment, inventory, cost of sales, and operating expenses. Accordingly, Sunrise Medical violated Section 13(b)(2)(A) and Rule 13b2-1. Further, Sunrise Medical violated Section 13(b)(2)(B) by failing to implement or enforce internal controls that ensured that Bio Clinic reported accurate financial results.


Based on the foregoing, Sunrise Medical violated Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.


In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified by Sunrise Medical in its Offer of Settlement.

Accordingly, IT IS ORDERED, that:

Pursuant to Section 21C of the Exchange Act, Sunrise Medical cease and desist from committing or causing any violation and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.

By the Commission.

Jonathan G. Katz

1 In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.

2 The Commission makes the findings herein pursuant to the Respondent’s offer of settlement. These findings are not binding on any other person or entity in this or any other proceeding.

3 Sunrise Medical’s fiscal year 1994 ended on July 1, 1994, and fiscal year 1995 ended on June 30, 1995.

4 In February 1996, Sunrise Medical restated its financial statements for FY 1994 and 1995, correcting the understatement of expenses from the fraud and making other, less significant, accounting changes. Thus, the difference between the reported and restated pre-tax earnings shown below is not solely the result of the fraud. The fraud had the following effect on Sunrise Medical’s pre-tax earnings (amounts in millions):


                                        FY 1994              FY 1995

Reported Pre-Tax Earnings                 $42.6              $51.9

Restated Pre-Tax Earnings                 $36.2              $33.9

Effect of fraud on Pre-Tax Earnings of:

   Overstatement of Accounts Receivable        $3.5                   $5.3 
   Overstatement of Property and Equipment  $2.3             $2.6 
   Overstatement of Inventory                 -              $4.9
   Understatement of Accounts Payable                  -              $1.0  

Overstatement of  Pre-Tax Earnings         $5.8              $13.8 

5 Contemporaneous with the entry of this Order, the Commission is filing a civil injunctive action in the U.S. District Court for the Central District of California against Barton, alleging that he violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1. The complaint also alleges that Barton exercised Sunrise Medical stock options and sold the underlying stock while in possession of the material, nonpublic information that Sunrise Medical’s earnings were overstated. Without admitting or denying the allegations of the complaint, Barton has consented to the entry of a final judgment in that action which will permanently enjoin him from further violations of the above-referenced provisions. The judgment will also waive the payment of disgorgement and civil money penalties based on Barton’s demonstrated inability to pay. The Commission is also issuing a separate Order Instituting Public Administrative Proceedings against: Longview and Rockwood, finding that they violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder; and Kranawetter and Robinson finding that they violated Section 13(b)(5) of the Exchange Act and caused violations of Rule 13b2-1 thereunder. The Order imposes a cease-and-desist order against each of the respondents and requires Longview to pay disgorgement of the bonus she received for fiscal year 1994 and prejudgment interest. Each respondent has consented to the entry of that Order without admitting or denying the findings therein.

6 Barton, Longview, and Rockwood capitalized unfavorable manufacturing cost variances (the difference between actual and predicted manufacturing costs) regardless of whether those costs related to the products that Bio Clinic sold (which costs they should have expensed) or to those products that Bio Clinic rented to customers (which costs they could properly capitalize).

7 Barton and Longview also transferred amounts from older to newer accounts receivable aging classifications to create the appearance that the receivables generally were less old than they were. Barton and Longview did this to reduce the likelihood that the false receivables would attract attention during the audit.

8 For example, Barton, Longview, and Rockwood capitalized $600,000 of expenses as machinery and equipment which did not exist. In addition, they aggregated over $2 million of unfavorable manufacturing cost variances into a line item labeled “Overhead A” under rental assets on the property and equipment subsidiary ledger. In its restatement, Sunrise Medical determined that Barton, Longview, and Rockwood had unjustifiably capitalized $1.7 million of this amount.

9 Barton and the supplier later changed the terms of the sham rebate. Rather than have the supplier actually pay Comfort Clinic the rebate amount and then increase its prices to Comfort Clinic, Barton executed another letter agreement that entitled Comfort Clinic to claim the rebate only if it purchased an amount of product from the supplier that Barton and the supplier knew was unrealistic. Barton did not disclose this revised condition to Sunrise Medical or its auditors.


  1. Stacie,

    Thanks for the story and the link. There are, however, some minor suggestions I’d make. You say:

    “and a purported owner of a website called Deepcapture.com.”
    Actually, for much of its existence we just put a big bubble on the upper right hand corner of the home page explaining that I am indeed the funder of DeepCapture.com; later, we added a whole page about it and who we are . So there is nothing “purported” about it. (In one more example of the Bad Guys’ mendacity, any time I mention this in an interview they write blogs pretending that it is some huge matter that I had previously kept hidden, presumably because they think suggestible people will fall for it.)

    “The purpose of Deepcapture is to expose the short sellers who are trying to make money off the decline in value of Overstock.com.”
    No, the purpose of DeepCapture is to expose the stock manipulators who are ruining our capital markets (most of whom have never had anything to do with overtock, as far as I know).

    “But really, what could be more interesting and telling than this disclosure from Sam Antar…”
    Here’s one thing that is more interesting about Sam Antar

  2. Mr. Byrne
    Thank you for the information. I will be sure to clarify your points in a future post.

  3. […] Byrne CEO of Overstock.com (or at least someone claiming to be Patrick Byrne) commented on my post, They Wield Their Personal Knowledge of Criminal Activity Like A Superpower […]

  4. purported says:

    Byrne: “So there is nothing “purported” about it..”

    DeepCapture: “It functions as a separate, limited liability media company, whose co-owners and managers are Judd Bagley, Evren Karpak, and Mark Mitchell.”

    The DeepCapture page contradicts your statement. Which (if either) is accurate?

  5. Good question. The person making the comment does seem to imply that Patrick Byrne is an owner of Deepcapture. But I should make this clear, I have no way of knowing who the actual person claiming to be Mr. Byrne is. But if we assume it is Patrick Byrne CEO, he’s got more problems than just an SEC issue. He may have just caused himself a tax problem too.

    The IRS may be the next agency knocking on his door.

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