Early findings from the probe have found ‘substantial overstatement of registered users, page impressions and revenues,’ according to a stock exchange announcement.
Investigators from Cap Gemini Ernst & Young and PricewaterhouseCoopers found that, based solely on information from sales agencies, revenues for the 23 months to 30 June 2000 were approximately Pounds 130,000, not the Pounds 1.8m stated in the company reports.
In a statement, e-district.net’s public relations agency said: ‘The investigations have also identified evidence of collusion within the company connected with the overstatement of registered users.’According to a spokesperson for e-district.net, inflated revenues were allegedly drawn up by manipulating data in reports on business conducted with sales agencies. Documentation supporting the data, ‘both written and electronic, appears to have been manipulated,’ according the statement.
The preliminary investigation suggests money was deposited into the company’s accounts from sources other than the sales agencies. It appears approximately £1.0m was received in this way between November 1999 and February 2001.’
Ernst & Young, which is investigating the overstated registered users and page impressions, found historic data pertaining to these was only available from February 2000. It found the data within the company’s systems does not reconcile with the published traffic details, but it was not able to verify the accuracy of the data. It appears there was also a dramatic fall in registered traffic, from 150 million page impressions to 9 million, between May and June of 2000, for reasons yet to be investigated.
Currently, the company has a cash balance of over Pounds 12m and a cash burn rate of Pounds 200,000 per month according to the statement. The company’s revenues for the six months to December 2000 are expected to be ‘negligible’.
E-district’s shares were suspended on 20 February after the company announced it had found accounting irregularities in its financial reports. Following the discovery, the board suspended chief executive Steve Laitman and then fired him, announcing it would sue him for damage.
PwC, the company’s auditor, would not comment other than to confirm it was involved in the investigation.
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