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It Takes a Fraud to Fight a Fraud?

November 9, 2009

In a story that reads as if it belongs on this blog, the pro-business magazine Forbes reveals that a top executive at a new financial “fraud risk management” firm was previously CEO of a company embroiled in a major financial scandal. Dennis Sheehan, just named as Chief Financial Officer for the fraud-fighting firm Daylight Forensic Advisory, allegedly enriched himself by insider trading and fraud during his term as a top Bisys Group executive.

During Sheehan’s reign as COO, CFO, President and then CEO of the Bisys Group, between 2001-2003 the fund was charged with falsifying its financial statements by “knowingly or recklessly” overstating income to pump the stock price, and top executives were charged with reaping $25 million through insider trading. The company eventually paid a $25 million SEC fine and $66.5 million to settle a class-action suit in the financial fraud case. Bisys also bilked investors to the tune of $230 million between 1999-2004 by overcharging funds they partnered with and then kicking-back some of the cash to the fund company. In 2006, the SEC fined Bisys $21.4 million, including $9.7 million for repayment of their “ill-gotten gains.”

But as Forbes points out, the SEC failed to go after Sheehan or other top Bisys executives for their role in the scandal. The agency did proceed against two lower-level employees, even though its own investigation found that employees were acting based on pressure from senior management. On SEC’s failure to go after Sheehan or the company’s then CFO, Forbes’ Neil Weinberg writes, “Neither man has faced criminal charges or has even had to repay (their) ill-gotten gains….” Weinberg notes that Sheehan took home $5.8 million while overseeing the Bisys frauds. In addition, on leaving Bisys, Sheehan’s transition agreement called for a $1 million payout, continued payments on his annual $1 million salary, and other compensation and benefits. Sheehan’s bio also notes he was on an advisory panel to the New York Stock Exchange and a senior advisor to Financial Technology Ventures, a management firm boasting $1 billion under management at three funds.

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