Item 8.01 Other Events.
Business Fraud
On June 5, 2015, the Company determined that it had been the victim of a criminal fraud. The incident involved employee impersonation and fraudulent requests from an outside entity targeting the Company’s finance department. This fraud resulted in transfers of funds aggregating $46.7 million held by a Company subsidiary incorporated in Hong Kong to other overseas accounts held by third parties. As soon as the Company became aware of this fraudulent activity it initiated contact with its Hong Kong subsidiary’s bank and promptly initiated legal proceedings in various foreign jurisdictions. As a result of these efforts, the Company has recovered $8.1 million of the amounts transferred. Furthermore, an additional $6.8 million of the amounts transferred are currently subject to legal injunction and reasonably expected to be recovered by the Company in due course. The Company is continuing to pursue the recovery of the remaining $31.8 million and is cooperating with U.S. federal and numerous overseas law enforcement authorities who are actively pursuing a multi-agency criminal investigation. The Company may be limited in what information it can disclose due to the ongoing investigation. The ultimate amount of the loss will depend, in part, on the Company’s success in recovering the funds. The Company may not be successful in obtaining any insurance coverage for this loss. The Company currently believes this is an isolated event and does not believe its technology systems have been compromised or that Company data has been exposed. While this matter will result in some additional near-term expenses, the Company does not expect this incident to have a material impact on its business or its ability to fund the anticipated working capital, capital expenditures and other liquidity requirements of its ongoing operations.
The Audit Committee of the Company’s Board of Directors has conducted an independent investigation into this matter with the assistance of outside advisors. The investigation concluded on July 17, 2015. The investigation uncovered no evidence that our systems were penetrated or that any corporate information, including our financial and account information, was accessed. The investigation found no evidence of employee criminal involvement in the fraud. As a result of this investigation, the Company, its Audit Committee and advisors have concluded that the Company’s internal control over financial reporting is ineffective due to one or more material weaknesses. The Company has implemented enhanced internal controls over financial reporting since June 5, 2015 and is in the process of implementing additional procedures and controls pursuant to recommendations from the investigation.
