The former chief financial officer for the PEO BBSI, know formerly as Barrett Business Services Inc. (Nasdaq: BBSI), James Douglas Miller, is being charged with four counts of making false financial reports to the Securities and Exchange Commission. The fraudulent statements hid the companies rapidly rising workers’ comp costs from investors while keeping the company’s stock price at artificially inflated levels.
The indictment by the United States Attorney in Washington alleges that Miller made millions by exercising his stock options during this time and then selling them on the open market. BBSI’s share price fell 59% when its true workers’ comp costs were revealed.
The indictment states that Miller purchased 35,300 shares of BBSI stock for $467,261 and then sold it for $2,396,323 while he was running the scheme to hide the workers’ comp costs.
Officials allege that Miller’s scheme hid workers’ comp costs by reporting them as various payroll expenses. “On earnings calls with investors and analysts between 2012 and 2014, Miller regularly reported BBSI’s workers’ compensation expenses as a percentage of its revenue. It was important to BBSI’s investors because it indicated whether BBSI was appropriately pricing its overall product offering,” the complaint alleges.
BBSI revealed in late-2014 that its workers’ comp program was under-reserved by $80 million. The charge wiped out five years of pre-tax earnings. In early 2016, the company reported that it could not rely on its financial statements and later restated nearly five-years’ worth of official SEC financial statements.
The Real Questions
This issue, however, is not just about individuals who either intentionally authored or those who may have negligently allowed these fraudulent statements to get into SEC filings. This is an issue of governance. The whole point of Sarbanes-Oxley (SOX), says one expert, is to have a series of controls in place so these types of misdeeds cannot occur.
While a criminal process has begun against the former chief financial officer, the obvious questions are where were the internal and independent auditors during these years, and what were they doing? What was the BBSI Audit Committee doing during this time? And what about the rest of the executive staff and the Directors?
As noted by the BBSI Amended and Restated Audit Committee Charter, part of its function is to assist the Board of Directors in overseeing “the reliability, quality, and integrity of the Company’s financial statements.”
The BBSI has a Code of Ethics, and Business Conduct begins by saying, “Barrett Business Services, Inc. (“BBSI”), demands that its employees, officers, and directors conduct business in accordance with the highest standards of integrity and personal and professional ethics.”
The actualization of that code appears to have been lacking in practice.
EDITORS NOTE: No person now or ever associated with or employed by Workers’ Comp Executive or any of its sister companies now owns or has ever owned or operated a PEO, any stock in BBSI or any other PEO.
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