Informix: The Software Terms Its Auditors Were Not Told About

In the Informix software-revenue accounting case, the Securities and Exchange Commission alleged that the company’s former chief executive concealed side agreements to software licenses on which Informix had already recorded revenue. The agency said he made false statements about those agreements to financial staff and independent auditors to avoid correcting the company’s financial statements. If you work in software sales or revenue accounting, the discrepancy may be familiar: the terms the customer received differ from the terms accounting was told about.

This case follows the hidden agreements and the effort to keep Informix’s reported results intact. Our page on revenue recognition and premature sales explains the broader revenue-timing problem. Here, the important connection is between the software contract, the information withheld from finance and the result investors saw.

Informix’s Side Agreements Stayed Out of the Accounting Story

The Securities and Exchange Commission’s account of its amended complaint concerned software-licensing contracts included in Informix’s financial statements for the fiscal year ended December 31, 1996. The agency alleged that the former president, chief executive and board chair concealed secret side agreements to contracts on which the company had improperly recognized revenue. It also alleged false statements about the existence of those agreements to the people preparing and auditing the numbers.

According to the SEC, the executive wanted to avoid triggering a restatement. We see auditors asked to check revenue while allegedly being misled about the deal behind it. The sale reached the books. The full bargain did not.

For someone who knows the customer relationship, a side agreement can change the meaning of the sale. The main contract, a later promise and the explanation sent to accounting may describe different obligations. The useful comparison follows those obligations into the reported revenue and identifies who knew about the difference.

What Did the Informix Accounting Restatement Change?

The Securities and Exchange Commission said Informix’s amended annual report changed originally reported net income of $97.8 million to a net loss of $73.6 million for the same year. Investors had been shown a profit where the corrected accounts showed a loss.

The agency attributed the decreases in earnings and income to several causes, including discovery of the agreements the executive allegedly concealed and other side agreements. Its account also says the board forced the executive to resign when the agreements were discovered. The SEC settled an administrative proceeding with Informix, and the former chief executive consented to a separate civil judgment.

Our page on accounting restatements and securities fraud follows the correction back to the underlying transactions. Informix gives that comparison a concrete focus: what finance and the auditors were told about the agreements while the earlier numbers still stood.

How Can an Insider Catch Software Revenue Accounting Fraud?

Catching accounting fraud at a software company means connecting the reported sale to the customer’s actual commitments and the explanations used to book it. We examine that connection with the person who understands the transaction. The records behind the revenue number can show both the bargain and the decisions that kept part of it out of sight.

The reporting chain runs from transaction records through accounting entries, the close and financial statements. A hidden term can matter at each handoff: the person negotiating it knows the promise, the accountant works from the information received, and the auditor examines the support presented for the result.

A signed license agreement and a side letter can show what the customer undertook to pay and what another promise changed. Customer or distributor correspondence can explain the timing of that commitment, while revenue entries and approvals connect it to the period in which the company counted the sale. Audit communications and confirmations show which terms reached the reviewer.

The 2019 paper Accounting Fraud: A Literature Review, published in Risk Governance and Control: Financial Markets & Institutions, describes statistical detection methods that examine sales growth, gross margins and days’ sales in receivables. Those measures concern patterns in the numbers. In a case like Informix’s, the insider can supply a different connection: which agreement changed the commercial meaning of a recorded sale.

The audit evidence belongs beside that agreement. The Securities and Exchange Commission’s Informix allegation makes the communication itself important: someone allegedly gave the reviewer a false answer about whether another agreement existed. Knowing who received the side term and what the reviewer was told can explain how a transaction survived scrutiny.

Other Revenue Cases Show What the Terms Can Change

MiMedx provides a concrete example of the terms a sales record can leave out. In its complaint against MiMedx and former executives, the SEC alleged concealed distributor arrangements involving return rights or payment contingent on sales to end users. The complaint also alleged that executives misled auditors and the audit committee after a former controller raised concerns. In that account, the invoice showed a sale while the allegedly undisclosed arrangement changed when the distributor owed payment.

Under Armour’s Securities and Exchange Commission case concerned the growth story attached to sales. The agency said the company pulled customer orders into earlier quarters, misrepresented the reasons for growth and left uncertainty about future revenue undisclosed. For that comparison, the customer’s original delivery request and the revised timing matter alongside the public explanation.

What a Software Revenue Insider Can Explain

A sales employee may know the promise made to secure the customer’s commitment. A revenue accountant may know which terms supported the entry, and an employee involved in the audit may know what the independent auditor received. We work with those connections when assessing how to report securities fraud.

The value of that knowledge has support beyond a single enforcement account. In The Significance of Whistleblowing as an Anti-Fraud Measure, published in the Journal of Forensic & Investigative Accounting in 2018, researchers examined occupational-fraud survey data. Among 4,943 frauds with complete data, whistleblowers detected 35.9%, compared with 21.4% detected through internal controls.

An eligible SEC whistleblower can earn 10% to 30% of qualifying sanctions collected in an action involving more than $1 million in monetary sanctions. We assess how your account of the sales practices and accounting decisions supports a securities fraud whistleblower case.

If the conduct you know also involves false claims for government money, we assess that part of the case with you too. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know the Terms Behind the Sale

If you know a software agreement promised something the revenue records left out, speak with our whistleblower experts about that deal. We build your strongest securities whistleblower case with you around the contract terms, accounting decisions and audit communications, and bring in securities fraud whistleblower lawyers who understand revenue cases. We stay beside you as the commercial reality you know becomes evidence investigators can use.