In re Kurzweil Applied Intelligence, Inc.

Accounting & Auditing Enforcement Release No. 689 [1995–1998 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 74,204 (July 25, 1995)

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In re Kurzweil Applied Intelligence, Inc.

Securities and Exchange Commission
Accounting & Auditing Enforcement Release No. 689 [1995–1998 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 74,204 (July 25, 1995)

SC

Facts

Kurzweil Applied Intelligence, Inc. (KAI) (defendant) manufactured and sold automated speech-recognition systems. A group of KAI senior executives implemented a scheme to artificially increase KAI’s revenue and earnings. To do this, the executives recognized revenue from sales that had not yet occurred. Many of these sales they expected to close but perhaps, for example, not until the next quarter. Among other things, the executives forged sales contracts and shipped goods to a secret warehouse offsite to create the appearance of goods being sold, recognized revenue from these sales as of each of these fake shipments, finalized sales with contingencies allowing the buyers to cancel the orders, and deceived KAI’s auditors by providing them with false documents. These practices resulted in a significant overstatement of KAI’s revenue during the period of the scheme. The Securities and Exchange Commission (SEC) (plaintiff) instituted a proceeding against KAI, alleging that the company’s recording of its sales practices violated SEC regulations.

Rule of Law

Issue

Holding and Reasoning ()

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