The District Court of Massachusetts has held Brian Adley, former chairman, chief executive officer and controlling shareholder, liable for fabricating documents and fraudulent accounting from 1998 to 2000, in a scheme to inflate Boston-based transport equipment leasing company Chancellor Corporation's reported assets, revenue and income. He was also found guilty of paying unwarranted fees to entities under his control.
The Securities and Exchange Commission (SEC) charged that after an initial audit firm refused to report suspect financial results and information proposed by Adley, he fired them and hired new auditors, BKR Metcalf Davis, which enabled the fraudulent scheme to proceed by conducting deficient audits of the company's financial statements. Gregory Davis, the concurring partner on the Chancellor audits performed by his firm, oversaw and signed the deficient, misleading audit reports.
In 1999, Chancellor reportedly overstated its revenue by 177%, net profit by 73% and assets by 12%. In 2000, the company allegedly made false filings overstating its assets and income by 32% to 173%. The court will determine civil sanctions and remedies at a later date.
SEC previously settled with 10 defendants, including Chancellor and former company officials, including its president, chief financial officer, treasurer, two directors and audit-committee members, outside auditing firm and three audit-team members.
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