Canopy Financial, a health care software company, is on the hot seat for misleading and defrauding investors and auditors on its financial health. Canopy's COO, Jeremy Blackburn, is facing both criminal and civil charges and faces a potential 20-year prison sentence and civil fines of $250,000 and mandatory restitution.
The Justice Department alleges Blackburn submitted a bogus audit report that resulted in $60 million private equity investment from Spectrum Equity Investors in July this year. Blackburn, 36, then used $2 million of that investment money for his own personal use, and used a false bank statement to obtain a mortgage on a new home. Blackburn has also been charged with submitting a bogus KPMG audit report to investors, something the accounting and audit firm claims it did not supply Canopy, according to a Justice Department statement.
Blackburn also allegedly transferred money from investments received into his own bank account, according to the DoJ statement:
""After Canopy received Spectrum's fraudulently obtained investment, Blackburn allegedly obtained unauthorized transfers from Canopy's financial accounts of more than $1 million to a credit card company account, a corporate jet leasing company, and a luxury automobile dealership, the charges allege. In addition, approximately $1.17 million was transferred from Canopy into two of Blackburn's personal bank accounts, allegedly without corporate authorization.""
Canopy Financial's product line focused on online health care transactions in areas like flexible health care spending accounts and included software for expense tracking, account management, payment processing and online bill payment. Blackburn allegedly used false bank statements to help bilk investors into thinking the company had a whole lot more money than it did.
From the Justice Department statement:
""In addition to the phony audit report, Blackburn and Individual B allegedly provided Spectrum with falsified bank statements for the months of January through June 2009 in response to a request by Spectrum. The statements, which purported to represent a Canopy account at Northern Trust Bank, showed balances from January through June ranging between $5.7 million and nearly $9 million. In fact, the charges allege, no such Canopy account existed and the only Canopy account at Northern Trust, which was held for the benefit of one of Canopy's Health Savings Account clients, had a balance at the end of June 2009 of just under $87,000.""
Blackburn, who resided in Malibu, Calif., was released on $1 million bond after appearing in a Chicago Federal court. He faces criminal charges for the Department of Justice and civil charges from the Securities and Exchange Commission.