Legal Question in Securities Law in California
Corporation and bankruptcy
A fortune 500 CFO admits to having deliberately treated $4 billion in operating expenses as assets, thereby allowing the corporation to show profits instead of losses, The auditor never detected this. The corps stock dropped 95% and bond covenants related to billions in debt are breached. At its peak price last year, the CFO sold stock acquired through stock options for $15 million, generating a $10 million gain.
Why might the corporation have to file for bankruptcy protection?
1 Answer from Attorneys
Re: Corporation and bankruptcy
Well, one reason might be that it is bankrupt. In fact, being bankrupt is the only legitimate reason for filing for bankruptcy. However, your facts do not say whether the corporation is bankrupt or not.
The supposed showing of operating expenses as assets shows that the person who thought up this set of supposed facts is not well versed in accounting. If expenses were shown as assets, the balance sheet wouldn't balance because there would be $4 billion too little on the liabilities and equity side.
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