United States Securities and Exchange Commission
LITIGATION RELEASE NO. 17631 / July 25, 2002
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1601
SECURITIES AND EXCHANGE COMMISSION v. OXFORD HEALTH PLANS, INC., 02 Civ. 5873 (SAS) (S.D.N.Y.)
SEC CHARGES OXFORD HEALTH PLANS, INC. AND ITS FORMER CFO AND CONTROLLER WITH 1997 FINANCIAL REPORTING, BOOKS AND RECORDS, AND INTERNAL CONTROLS VIOLATIONS - OXFORD AGREES TO PAY $250,000 PENALTY
The Commission today announced that it instituted settled cease-and-desist proceedings against Oxford Health Plans, Inc., Oxford's former Chief Financial Officer, Andrew B. Cassidy, and Oxford's former controller, Brendan R. Shanahan. The case involves violations of the reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act") that occurred in connection with certain financial adjustments that Oxford made in the fall of 1997.
In addition, the Commission filed a complaint in the United States District Court for the Southern District of New York against Oxford seeking a civil money penalty. Without admitting or denying the allegations in the complaint, Oxford has consented to the entry of a judgment ordering it to pay a $250,000 penalty based on the same violations.
The Order issued by the Commission contains the following findings:
- For the months of January through September 1997, Oxford erroneously recorded $81 million in revenue on its internal books and records as a result of certain incorrectly performed journal entries. Oxford discovered the erroneously recorded revenues during the preparation of its third quarter 1997 financial reports. On October 27, 1997, Oxford filed a Form 8-K stating that Oxford's third quarter 1997 revenues were expected to be $111 million lower than previous estimates due to adjustments to membership resulting from delayed premium bills. Oxford did not specifically disclose the fact that $81 million of this $111 million revenue shortfall was attributable to the erroneously-recorded revenues.
- Approximately $25 million in erroneously recorded revenues were included in Oxford's financials as reported in its second quarter 1997 Form 10-Q. As a result, Oxford's reported net income for this period was overstated by 26%. On November 13, 1997, Oxford filed its third quarter 1997 Form 10-Q reporting a net loss for the quarter of $78 million or $.99 per share. The financials contained in this third quarter 1997 Form 10-Q violated Generally Accepted Accounting Principles by failing to include a restatement of the previous quarter, and failed to disclose specifically the existence and cause of the erroneously recorded revenues.
- As a result of this conduct, Oxford violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. Cassidy, then Oxford's CFO, was a cause of Oxford's reporting violations because he signed Oxford's October 27, 1997 Form 8-K and third quarter 1997 Form 10-Q when underlying facts concerning Oxford's decision not to restate were available to him. Shanahan, then Oxford's controller, was a cause of Oxford's reporting violations because he advised members of Oxford's management that a restatement was not required. Cassidy and Shanahan were both causes of Oxford's books and records and internal controls violations because they failed to ensure that Oxford had internal controls that were sufficient to prevent the erroneous recording of revenue.
Without admitting or denying the Commission's findings, Oxford consented to the entry of the Order, which requires them to cease and desist from committing or causing any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. The Order, to which Cassidy and Shanahan also consented without admitting or denying the Commission's findings, requires Cassidy and Shanahan to cease and desist from causing violations of the same provisions.