Dead Solid Pluperfect

A Hot Buttered Guff™ Production

Arbortext Accounting Fraud #45: The Smoking Gun

Chapter Forty-Five
The Smoking Gun

As I previously mentioned, the Working Papers of Plante Moran’s Mark Robinson produced the Smoking Gun we had been looking oh so long and hard for. He had this evidence when he concluded his audit, but did not include it in his report. Worse, his conclusion found no significant problems with Arbortext’s accounting practices at all.

As I promised earlier in Chapter 36: The Plante Moran Cover Up, we will now revisit Robinson’s Audit Report in light of his Working Papers. While the initial entries may seem tame fudging, and even somewhat tedious, I include them here to demonstrate the all encompassing travesty of Robinson’s eventual “clean” conclusions, especially in conjunction with the final exhibit, Working Papers #19, which will completely explode the validity of his audit and demonstrate beyond any doubt the fraudulent accounting practices of Arbortext.

Working Papers #1:

This has only one page which says “WP-1 is the electronic version of the Sales Database.” Mark Robinson therefore has a computer file of the Sales Database. He omitted sending this file to us to examine. Pity. It would have been a possibly damning piece of evidence, since this database can be compared to the Royalty Report and the License Key database. I presume it is still somewhere in Plante Moran’s offices. Or should be.

Working Papers #2: (See Exhibit V)

This is a list of the Query statements used by Arbortext to extract Blueberry’s royalty related information from the Accounting System/Sales Database Invoices. The first page lists the SKU product numbers to include in the search. Robinson says in his report that:

Plante & Moran reviewed the code (WP-2) associated with performing the extract and did not identify any errors. Plante & Moran also reviewed Arbortext’s complete Product SKU Listing (WP-3) to ensure all SKUs associated with software products that contain Blueberry software are incorporated in the code that is used in performing the extract.”

Perhaps Robinson “did not identify any errors,” but certainly there were problems that he left unmentioned. He mentioned uncertainty about whether the Email modified the contract, but did not report that the percentage based system Arbortext was using did not reflect either the contract OR the email. It was simply an Arbortext invention.

The second and third pages are divided into two sets of different programming “if…else” queries. The first set focuses on all invoices that have a date greater than 9-30-04 – the cutoff date of the Plante Moran audit. The second set will pick up all invoices prior to this date that the audit will actually be examining.

This audit period second set has several formulas based on the number of CPUs involved in the license sale, with the top end of the set being 20% for a 1 CPU sale and scaled downward to 14% with a 4 CPU sale. This is the percentage of the total sale that will be extracted to the Royalty Report, where it will then have Blueberry’s royalty percentage applied to it. This entire concoction has no basis in the Contract and was invented and first applied by Arbortext on the July 2002 Royalty Report which punished Blueberry for catching Arbortext cheating.

The post-audit set of formulas produces a top end royalty percentage of 16% and is scaled downward to 11%. Yet another reduction in Blueberry’s royalties unilaterally imposed by Arbortext with no input or acceptance by Blueberry and placed into action immediately beyond the scope of the Audit.

No comment was made by Mark Robinson about this double set of queries. He mentions that there could be a case made that Arbortext’s formulaic percentage based system has no justification in the Contract, but he does not mention that the system itself is still undergoing a downward adjustment solely at Arbortext’s whim, for their financial gain and Blueberry’s financial loss.

Working Papers #4: (See Exhibit W)

These are Consolidated Financial Statements from Arbortext’s auditor KPMG, covering the years 2000 – 2003.

They are curious. For what is there, and what isn’t.

The first report, issued February 28, 2001, covers the year 2000. The Table of Contents for this, and all of the reports, refers to six following pages. Only the first three are included. Pages 4, 5, and 6 are excluded. These pages cover Shareholder’s Equity and Comprehensive Income, Statements of Cash Flows, and Notes to Consolidated Financial Statements. It is unclear why these pages are missing.

The “Independent Auditor’s Report” page, which leads off the reports, all have the exact same boilerplate first three paragraphs. The first Report, however, has a fourth paragraph which reads thusly:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 12. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.”

This was the precarious financial condition of Arbortext prior to gaining the technology of Blueberry Software to translate MS Word, Framemaker, and Interleaf documents into its Epic Editor and E3 products, which proved so successful that Parametric Technology forked over $194,000,000 in cash five years later to acquire Arbortext.

The three boilerplate paragraphs are standard auditing disclaimers. The above paragraph is an opinion of the auditor. The reports for 2001, 2002, and 2003 do not have any opinion from the auditor. Only the three boilerplate paragraphs.

Why no comments/opinions from KPMG on these reports? Are the totals on these reports the same as the ones in KPMG’s own records? Did Robinson get these reports from Arbortext or straight from KPMG? He uses them as a cross reference verification in his audit.

There is, for instance, a one million dollar difference in the Cost of Revenues and Gross Profit figures listed for 2001 on the 2001 report and the 2001 figures listed on the 2002 report. How did these figures change? And what’s on the missing three pages from each report? What Notes are we not getting to examine?

I won’t mention that all the reports have little binder ticks on the left side of the pages, except for the December 31, 2002 and 2001 report pages, which have none. To draw attention to this curiosity might seem like I was having a false, paranoid projection.

Oh well. We’ll find out more when we proceed to Discovery in Arbitration and get to subpoena the actual records of KPMG. Right? Surely we will. Won’t we?

Working Papers #5: (See Exhibit X)

This section was a print out of, I guess, Total Revenue covering the period Q1 2000 through Q3 2004. The period examined by the Audit. I mention guessing, because there is no Header on any of these pages identifying what exactly they are. It appears they are from a spreadsheet, and not a report blurted forth from the Accounting System, with Company Name and Logo, Headers, Footers, dates, and all that mundane official report type stuff. Apparently, after twenty some years in business, nobody in the accounting department had thought to put together an official Total Revenue report. I wonder if Robinson thought that this was a bit funky, to say the least.

At any rate, the report was, to be quite blunt, a phony doctored submission given to Plante Moran by Arbortext. Not only the suspicious non-professionalism mentioned above, but it also contains clearly edited and inserted entries. Robinson even referred to these edits and insertions: “Plante & Moran verified certain write-offs against the bad debt reserve (WP-5 and WP-6) that resulted in the reduction of royalties that were paid in earlier periods.” Isn’t a Revenue print out a strange place to verify bad debt reserve write-offs? Isn’t that a General Ledger type of deal?

The dollar amounts involved here aren’t hugely significant. Which makes the tortured effort of deceit even more pathetic. Arbortext needed these Revenue amounts, vis a vis Blueberry, to match up with the Cumulative Royalty Report and give it validity. In other words, Arbortext’s whole effort with its audit submissions begins with the Royalty Report and works upward to the Accounting system, not vice versa as would be the norm. Given the year long head start that Peralta and Blair’s delaying tactics had given Arbortext to prepare for this audit, to still produce such an amateurish sham speaks volumes about the scarcity of intellect roaming the hallways in this company.

To begin with, these are Revenue reports, not General Ledger or Profit and Loss Statements. There should be no entries here other than Revenue. Yet on many of the pages, down near the bottom, there are accounting entries such as “check – $60, Inv# 18006 -Raymark Xpert” (page 3, Q3 2000 report). This type of entry is a General Ledger type of entry and is out of place in a Revenue report. It’s a manually inserted comment.

Another type of non-revenue report insertion is the frequent notation at the bottom of the License Revenue list “Write-off’s Against Bad Debt Reserve,” which Robinson referred to above as a verification technique. This notation is indented at the same level as the licenses listed in the License Revenue portion, but occurs beneath the non-indented sections titled “Revenue-Maintenance” and “Revenue Professional Services.” Out of place in location and by existence on a revenue report. Each one of these entries achieves a reduction in royalties owed to Blueberry, making the Revenue Report totals match the actual royalties paid on the Royalty Report. Sort of.

Another concoction is fairly laughable and occurs on the Q3 2000 page. All of the licenses listed on these pages are the exact line item descriptions from the SKU numbers in their accounting system (and Robinson’s WP-3). Except for ONE: “Publishing Site License, exluding [sic] interchange”. There is no such SKU line item description anywhere in their accounting system. IT’S A PHONY. It was even mistyped when it was phonied up! It’s sole purpose is to proclaim loudly: We don’t owe Blueberry any money for this $453,643.00 site license figure.

Q1 2003 has one of the entries “Write-offs Against Bad Debt Reserve.” It deducts $8,400 from the total Interchange sales that the License Revenue report spit out. Once again, presumably to match the Royalty Report itself. Except that it doesn’t. The Royalty Report lists $104,585.36 in applicable Interchange royalties for this period. The License Revenue Report lists $102,777.13. After the Write-off, the Revenue Report lists $94,377.13. This represents a $10,208.23 discrepancy between the Revenue Report and the Royalty Report.

Additionally, this page has an entry at the very bottom “ATI paid minimum – $7,500.” This isn’t even a General Ledger type entry. More like just a sticky back note, supposedly generated by the Revenue print out. And for what purpose?

Q3 2003 has an entry “Reseller Commission due on Sale” which deducts $9,000 from the total Interchange revenue. Even with this bogus entry, the total on the License Revenue report is $184,955.10, while the total on the Royalty Report is $151,740.29. Since the Royalty Report already HAS the $9,000 Reseller Commission deducted from its total, this entry is a double dip and these two reports are $33,214.81 different – and not in Blueberry’s favor.

Mr. Robinson’s comment? No problemo. ZZZZZZzzzzzzzzzzzzzz.

These revenue reports clearly indicate that Robinson did not generate them himself. He merely examined, somewhat, the information Arbortext gave him to examine. Or perhaps just stuck the stuff in his binder without a glance. That is not performing an audit and it certainly is not performing any forensic work. Twelve of the nineteen pages here have been visibly doctored.

Enough on the WP-4 Revenue print outs. The only thing they prove is that Arbortext has submitted false documents to a licensed CPA and Certified Fraud Examiner conducting an “independent” audit. Since these reports are VISUALLY suspect, without even getting out the calculator, that Robinson failed to raise a red flag, or any kind of note at all, is not particularly due diligence in the performance of an audit.

Working Papers #10: (See Exhibit Y)

Let’s revisit Corporate Controller Karen Sharplin’s email about the Intermarket product at this point. Her email to Robinson said, “Epic Intermarket was a new product that was to be developed some years ago, however it never was developed. There have never been any sales of this product.”

After this email, Mary faxed Robinson our Intermarket evidence (Zoltan Gombosi’s resume and several web page print outs describing Intermarket and announcing its release) and concluded by saying, “I do not know if this additional information [our Intermarket evidence we sent to him] will aid you in locating ‘Epic Intermarket’ sales. Since Arbortext, through Karen Sharplin, has stated that they never even completed development of the product, we would at least like the record to show that this most certainly appears to be false.”

We heard nothing more from Robinson except his two MRO explanations in his Audit report. He did not mention in that report that Sharplin had lied about Intermarket.

In his audit report conclusions, Robinson stated “it is unclear as to what software components are contained in E-Catalog or are part of a Site License” and he had further information about MRO, but deferred to Arbortext as to whether he could release it. This left the impression that this information would further support his conclusion.

However, the further information turned out to be the MRO / Arbortext Contract and it completely refuted his conclusion and Sharplin’s email and thus the Audit’s entire “explanation” about E-Catalog/Intermarket. The first paragraph of this contract states (emphasis added):

Whereas, ATI has designed and developed and licenses its proprietary EPIC and eCatalog computer software programs (the “ATI Programs”) which are further defined in Section 1.5 below, and is experienced in the design and development of customized software. MRO wishes to license the ATI Programs from ATI for incorporation into an MRO-branded content management product (“ Content Manager”);

Doesn’t get any clearer than that, Mr. Robinson. E-Catalog, very first sentence, very first paragraph, designed, developed, and licensed. Appendix D, page 18 of your Audit Report, payments made for E-Catalog License ($100,000 in 2001) and payments made for Site License for this E-Catalog License. Why do you attempt to deny this in your Audit Conclusion?

These are Arbortext products SOLD to MRO and PAID for by MRO and the nature of the two companies’ relationship and its abandonment is irrelevant.

Working Papers #19: (See Exhibit Z)

The Smokingest Barrel Melting Gun of All.

An indictment of both Arbortext and the Plante Moran Audit.

These pages represent a print out of the License Key database. AFTER it was cleaned up and fixed by Arbortext. The original database print out, the one Robinson said on the phone to Mary had “significant” discrepancies with the Royalty Report, is missing from the Working Papers. Either it was destroyed by Robinson or he purposefully did not include it.

The single most important piece of evidentiary proof of Arbortext Fraud and the vindication of our reasons for hiring Robinson to perform the Royalty Compliance Audit was shredded or withheld.

Yet even this fixed up and altered print out of that database proved that Arbortext was cheating us and that Robinson lied about it on his report.

Robinson says in his report (emphasis added):

We verified that the Active Licenses identified in the ‘Key Database’ (WP-19) had revenue associated with them in the Total Arbortext Sales Database (WP-1). We also verified the number of Active Licenses with the number of licenses reported in the Cumulative Royalty Report sent to Blueberry, Exhibit A.

(See Exhibit AA for the actual Royalty Report referenced above and throughout these pages.)

So, Robinson compared licenses in the Key database to the Sales database – pronouncing them as pretty close to matching, but did not compare the licenses in either database to the Royalty report – the subject of the entire audit! He only compared the NUMBER of licenses.

Perhaps because six of the first ten customer licenses listed in the Key Database, that Robinson “verified” had revenue associated with them in the Sales Database, are not on the Royalty Report!

Hard to miss that, Mark. And if you “verified” that these licenses had revenue associated with them in the Sales Database, then it’s clear Arbortext stiffed Blueberry for payment of royalties on them.

And this was the “cleaned up” version of the Key Database. Which is still a phony and is readily identifiable as such by simply looking at it. The first 211 licenses are visually doctored entries. The dates are all December 31, 1999 and in a different column and a different font size than the entire rest of the license key list. Blueberry didn’t sign a contract with Arbortext until July 12, 2000 and the product descriptions in these 1999 licenses contain products that weren’t released by Arbortext until 2002 and 2003!

What was Arbortext hiding/obscuring/manufacturing here? Surely doesn’t seem to justify Robinson’s remark that “the current key distribution system is linked with the current product sales and is automated versus manual and is less prone to errors.”

A further damning revelation of this cleaned up Key Database and Mark Robinson’s report concerns the U.S. Coast Guard. The following is what Robinson said about this customer in his audit and the remarks I made about it (Chapter 36: The Plante Moran Cover Up).

• U.S. Coast Guard – A solicitation notice from the U.S. Coast Guard requests maintenance on 2 E3 single processor licenses and 2 E3 quad processor licenses (WP-18). Our review of the Key Database and the Total Arbortext Sales Database both agree that only one E3 single processor license and 1 E3 quad processor license were ever sold to the U.S. Coast Guard. This finding agrees with the Cumulative Royalty Report as well.


In other words Mark, the solicitation notice from the Coast Guard (which we sent to you) requests maintenance on 4 E3 licenses, yet only 2 are in the Sales Database, the Key Database, and the Royalty Report. Thanks for glossing over this point that Blueberry did not receive royalties on HALF of the Coast Guard sales. In fact, these sales seem to be missing from Arbortext’s records entirely, just like the $4,000,000 in Intermarket sales. You don’t seem to be mentioning that this is a PROBLEM.


The cleaned up WP-19 License Key Database now contains ZERO Coast Guard licenses!

They have disappeared. I’m sure the Coast Guard will be quite unhappy to learn that they no longer have valid licenses for any of the products they purchased. In fact, the above statement by Robinson in his Audit Report is a flat out lie. His review of the Key Database and the Total Arbortext Sales Database DO NOT agree with the Cumulative Royalty Report.

Perhaps Robinson’s statement above was made from viewing the Key Database before it was cleaned up, not afterward. And if there were 2 Coast Guard licenses in the original Key Database and 2 in the Sales Database, then the new Key Database no longer matches the Sales Database, either. There is thus no agreement amongst any of the three critical databases.

Making Mark Robinson’s Plante Moran Audit and its findings a total hoax and a fraud.

So, if we have a shadow database for Licenses and another one for Royalties and likely a third one for Sales (since E-Catalog has never been found in there), then the phoniness of these three databases makes the Revenue printouts, which were keyed to match the Royalty Reports, also completely phony. It also makes the financial statements of KPMG phony because the Cost of Goods/Services, where Blueberry payments would be recorded, is not accurate. Which makes five years of Arbortext tax returns reported to the IRS false, and the information provided to the SEC during the Acquisition false.

Virtually all of the information provided by Arbortext in Robinson’s Audit Working Papers was a fabrication, a partial-truth, an admission of guilt, or an outright forgery. Since the veracity of all of it depends ultimately and entirely on the veracity of the Royalty Report, and that report is demonstrably false, I rest my case of deliberate Fraud by Plante Moran and Arbortext.

How bad was this Fraud and its Cover Up? See for yourself by downloading the following Excel spreadsheet. This Excel file contains a merger of the License Key database entries and the Royalty Report entries. In Black letters are the Royalty entries; in Red are the License Key entries. Not to spoil the drama, but there are 761 discrepancies between the two databases! How many more existed before Arbortext “fixed” things up and made their system “less prone to errors”? The discrepancies involve both sales that were reported to Blueberry, but have no license in the Key Database, and licenses in the Key database that have no corresponding sale in the Royalty Report. These two databases simply DO NOT EVEN REMOTELY MATCH.

If any of you have remained skeptical of the accusations I have made throughout this saga concerning Arbortext and Plante Moran, this file presents Clear and Convincing Proof of the truth of my claims. You don’t need to be a CPA to easily see the breadth and scope of this cheating.

You can still, however, entertain the opinion that I have been a little too forceful in my choice of adjectives, adverbs, and metaphors while describing this sordid tale. That’s fair. In my defense, though, I’ve been a little ticked off by this whole long running nightmare and the devastation it has caused to me, to Mary, and to our family.

Click Exhibit AB to view or download this Excel file and draw your own conclusions.

After examining this file, if you live in Michigan, call your Representative and demand an investigation. Oh, wait. That won’t be necessary. We have Kathryn J. Humphrey, Michigan Super Lawyer of the Year 2006, from the prestigious judge-providing law firm of Dykema Gossett, sitting right here in the Arbitrator’s chair. She’ll get to the bottom of this skullduggery. Surely she will. Won’t she?



See Exhibit AC for Blueberry’s Response to Parametric’s Motion To Dismiss. We made a little boo-boo on the first page, inadvertently accusing Palizzi of Fraudulent Concealment himself, which he dutifully scolded us for. Oops. Hey, we’re not lawyers, old boy, we’re just prey. Slack off and chill.

To be continued . . . Free Hit Counter website statistics


September 19, 2008 - Posted by | Business, Law | , , , , , , ,

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