Two former executives from Charlotte-based janitorial services company Swisher Hygiene were found guilty of securities fraud this week.
Michael Kipp, 63, of Charlotte, and Joanne Viard, 38, of Indian Trail were convicted in federal court in Charlotte of conspiring to commit securities fraud, making false and misleading statements to auditors and falsifying the books and records of Swisher. Kipp also was convicted of wire fraud, securities fraud and bank fraud.
Swisher is a former Charlotte-based provider of janitorial and cleaning-supply services that was bought in 2015 by a Minnesota-based company called Ecolab.
Swisher began facing allegations of financial wrongdoing in 2012, when the fast-growing company said it was conducting an internal investigation of its accounting practices after a former employee raised concerns. Swisher’s stock plunged and investors filed suit.
Kipp and Viard were found guilty after a three-week bench trial by U.S. District Judge Max Cogburn Jr. on Tuesday.
Court records show Kipp, Swisher’s then-chief financial officer, and Viard, a certified public accountant and Swisher’s then-director of external reporting, engaged in the accounting fraud scheme throughout fiscal year 2011.
The pair committed fraud to ensure that Swisher’s reported earnings met or exceeded executive management’s forecasts, and to conceal the existence of the fraud from Swisher’s auditors and the investing public and others, according to prosecutors.
In particular, Kipp and Viard manipulated Swisher’s books and records so Swisher would meet targeted goals despite actual earnings, court documents show. When they fell short of their target, the pair used various ways to inflate Swisher’s earnings, according to court records.
The scheme began to unravel when Swisher’s then controller pushed back on making a fake entry during the year-end close.
According to court documents, the controller wrote in an email: “I’ll run it by BDO (Swisher’s auditors) so we’re on the same page,” to which Kipp replied, “You’ll run it by me since I’m the chief accounting officer. I’m out of patience with this.”
Later, Kipp fired the controller for his “persistent refusal” to book the fake entry, records show.
Swisher’s audit committee learned of the controller’s allegations and promptly commissioned an independent internal investigation.
About 11 months after the announcement of the federal investigation, Swisher filed restated financial reports for the first three quarters of 2011 and filed its 10-K form for 2011. The restatement reflected, among other things, that Swisher had substantially overstated its earnings and significantly understated its losses during the relevant period, documents show.
Previously, Swisher entered into a deferred prosecution agreement with the government in which the company took responsibility for the conduct of its former employees and agreed to pay a $2 million penalty.
In 2015, Swisher’s former senior-level accounting employee, John Pierrard, pleaded guilty to securities fraud conspiracy.
The conspiracy charge carries a maximum five years in prison. The securities fraud and wire fraud charges each carry a maximum 20 years, and the bank fraud charge carries a maximum 30 years.
No date has been scheduled for Kipp’s and Viard’s sentencings.