Top Forensic Algorithms Check Whistleblower's $6B Claims Against Disney

Aug. 20, 2019 7:44 PM ETThe Walt Disney Company (DIS)30 Comments


  • A former Walt Disney Co. accountant filed a series of whistleblower tips with the Securities and Exchange Commission alleging Disney overstated revenue for years.
  • In this article, I examined the scores from four top forensic algorithms that check for earnings manipulation, financial irregularities, and bankruptcy risks.
  • Only one period in 2012 produce any adverse scoring by a forensic model, and the period does not correspond to the 2008/2009 assertions.
  • The forensic tables of Altman, Beneish, Ohlson, and Montier are displayed below along with value/growth algorithms of Levermann and Piotroski.
  • This idea was discussed in more depth with members of my private investing community, Value & Momentum Breakouts. Get started today »

Do Forensic Algorithms Detect Any Disney Financial Fraud?

In an ongoing look at some major whistleblower accusations recently, I took a look to see if the claims against Disney (NYSE:DIS) showed any irregularities in the top forensic algorithms commonly used by certified fraud examiners. As part of my regular stock analysis and selections, I routinely publish screens of the most positive and negative forensic stocks in the market:

Forensic Stock Analysis For August: Do You Own These Stocks?

Most recently, I took a look at Harry Markopolos' accusations that "General Electric (GE) has engaged in fraud larger than Enron or Worldcom" in my article:

Running Top Forensic Algorithms On 2012-2019 GE Financials

In another series of articles, I look at certain combinations of these forensic and value scores to predict stock price performance like Tesla's (TSLA) recent 40% decline:

The 3 Largest Stocks Now Scoring Worse Than Tesla Before Its 40% Decline

These models are designed to flag certain elements where examiners could look deeper to assess conditions of a company.

The Walt Disney Co. Stock Chart from 2006 to 2013

Former Disney Financial Analyst's Fraud Claims

Sandra Kuba, formerly a senior financial analyst in Disney's revenue-operations department who worked for the company for 18 years, alleges that employees working in the parks-and-resorts business segment systematically overstated revenue by billions of dollars by exploiting weaknesses in the company's accounting software. (Source)

While these overstatements are claimed to have occurred in many reporting periods up to 2013, the most specific accusation filed with the SEC says that,

In just one financial year, 2008-09, Disney's annual revenue could have been overstated by as much as $6 billion, Kuba's whistleblower filing alleges. (Source)

Naturally, we would expect some irregularities to show up in the time periods where over $6 billion in revenue statement is alleged

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This article was written by

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Revealing the best financial models targeting double digit success

Welcome! I am a Finance PhD, MBA, investment adviser, fraud examiner and certified anti-money laundering specialist with more than 30 years trading and investing stocks and other securities. I'm the founder of Value & Momentum Breakouts.


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