A legal nightmare unfolded for Gregory Law when he was CFO of orthopedics technology company Osiris Therapeutics from 2015 to 2019. He recounted the experience last week in an essay on CFO.com in an effort to shed light on the impact criminal charges can have on accused executives.
"There are circumstances in which the enforcement division of the Securities and Exchange Commission may assume there’s a good chance you are not ethical. Even if you are," Law says in his essay. "I spent almost four years dealing with the real-world consequences of that mindset."
Signs of trouble
In 2015, Law had just been promoted to CFO after almost a year as vice president of finance. He focused mainly on implementing accounting, financial reporting, and management systems for a company moving from a research and development posture to commercializing three new products.
Shortly after the promotion, his accounting staff shared concerns over how one of the sales agents was recognizing revenue, and later, they questioned the legitimacy of certain distributor sales.
Law directed his staff to make what he described as an immaterial restatement to the financials for the previous two quarters as a result of the findings.
The company’s external auditor later informed him their work for the company was being audited by the Public Company Accounting Oversight Board (PCAOB), a federal audit watchdog. A short time later, the Securities and Exchange Commission and the U.S. attorney for the Southern District of New York opened investigations.
Law says his interaction with the company's external auditor made it clear he needed to replace them. “They asked such basic questions that I questioned whether they had gained enough evidence during prior audits to issue valid opinions,” he said.
He brought on board a big-four auditing firm, Ernst & Young, after which the external auditor resigned. He then launched his own review of past accounting practices with the help of a law firm and forensic accounting team.
Investors take notice
Shortly after these actions, the CEO, followed by two other executives, resigned, causing "rampant speculation from Wall Street and others" that the company was in trouble.
Over the next two years, Law says, his days were consumed with investigations.
"The [SEC] seemed to have developed a narrative where everyone at Osiris was involved in a conspiracy to fool the company’s external auditors," he said, even though there was no evidence of that in his discussions with them or the material he shared.
In late 2017, charges were filed against him personally. "To say I was shocked would be an understatement," he said.
Eventually his version of events won the day: the CFO he replaced in 2015 pled guilty to providing the external auditor with falsified documents, the company settled for a $1.5 million fine, and, two years later, the SEC dropped its case against him. But the victory came at a devastating cost to his professional reputation, he said.
"It took 690 days ... for the SEC to admit it had mistakenly included me in its lawsuit," he said. "It didn’t issue a press release announcing the dismissal. The original press release announcing the lawsuit remains on the SEC’s website with no notation regarding the dismissal.
"My loss of earnings, spent savings, and impact on future earnings this lawsuit cost me have been significant," he said. "I cannot sue or otherwise recover any of this from the SEC or the SEC employees that knew or should have known that I shouldn’t have been included in the lawsuit. Sadly, the SEC doesn’t hold itself to the same exacting standards it holds company executives to."
In his piece, Law provides a step-by-step recounting of the investigations and lawsuits and shares his thoughts on what CFOs can learn from his experience to avoid finding themselves in a similar situation.