Who turns out to be the hero in the Canopy Financial mess? The young general counsel, Daniel Stevenson, who’d recently quit Wilson Sonsini to join what seemed like a promising startup.
The SEC office in Chicago charged Canopy and its COO, Jeremy Blackburn, yesterday for forging financial statements to impress potential investors like Spectrum Equity, which pumped $75 million into the healthcare savings account software company.
But the really interesting part of the complaint is where it talks about Stevenson’s somewhat accidental role in uncovering the fraud. The SEC says in its complaint (.pdf) that this month Stevenson began a search for a chief financial officer and contacted a buddy at accounting giant KPMG about possible candidates. The GC sent along what “he understood were the KPMG Audit Report and “Canopy’s audited financial statements” to his KPMG acquaintance.” But, it turned out that KPMG didn’t actually do the audit! (Cue Paul Hastings for the internal investigation!)
The accounting firm sent Canopy a “cease-and-desist” letter Nov. 3, saying it hadn’t been hired by Canopy, nor done the audit. Instead, the SEC alleges, the audit report was the handiwork of Blackburn — and the SEC says it has evidence showing that Blackburn told another Canopy exec to lie about the report.
The moral of the story is this: Your accountant friends may be kinda boring, but it’s good to keep them around. Because in Silicon Valley, everything comes down to who you know.
— Zusha Elinson
Enforcement may not by itself curtail accidents but I am certain the fear of stiff fines and higher insurance rates does.
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