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Financial Statement Fraud Casebook: Baking the Ledgers and Cooking the Books by Joseph T. Wells

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Chapter 22

Wade's WMD

Michael Spindler

World Machine Distributors (WMD) had undergone a significant period of growth during a time of economic expansion. WMD had developed expertise in industrial machinery and maintained an inventory of hard-to-find spare parts by buying equipment from factory foreclosures and other open market purchases. Wade Johnston, the company's CEO and largest shareholder, drove the company's sales and had developed relationships with many suppliers. As equipment lines were discontinued, he would buy up the inventory of spare parts. Maintaining this line of inventory required capital, so as the company grew, Wade decided to hold an initial public offering of the company's stock, thereby becoming a public company with SEC filing requirements.

Although WMD had become a public company, it was still very much “Wade's” company. He had a volatile personality and he ruled with an iron fist. His employees were not very interested in crossing him or questioning his directives. If provoked, he would fire employees without consultation with department heads or human resources.

Breakfast at Denny's

Our work began with an initial interview with a whistleblower, Clive Ingram. Clive had told the external auditors that crimes had been committed (although he wasn't exactly sure what crimes they were). The external auditors notified the company's audit committee and informed them that an independent investigation into the allegations must be conducted. The company's board ...

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