Disney is supposed to be in the business of making magic—but not with its numbers.
A former senior financial analyst for The Walt Disney Company has filed multiple claims with the Securities and Exchange Commission about the company’s accounting practices, according to a report by MarketWatch.
Sandra Kubra claims that employees at Disney falsely inflated revenue for years. Some of the methods included pretending that complimentary golf games or other free or discounted promotional services and products were paid in full. Software flaws supposedly allowed these and other misstatements to be entered. Disney, in a statement to Fortune, denied the claims had any merit.
Here’s what we know so far.
Little transactions, big numbers
Public companies live and die among investors by their revenues and profits. That’s why regulators require full and accurate financial statements, so investors can see a company’s performance.
Kubra claims that Disney manipulated a lot of small transactions, apparently at the theme parks, misrepresenting their actual value and, when totaled, significantly increasing the company’s revenues.
She says she told the Board
In Disney’s 2009 fiscal year, the parks and resorts business unit showed $10.7 billion in revenue. Kubra said the number could have been inflated by upwards of $6 billion.
She claimed to have repeatedly reported the problems to Disney officials and the company’s board. Kubra contacted the SEC in 2017 and was fired a month after.
“If [Kubra’s concerns] really had been brought to [a board] level, you would think that if there was anything there they would have dealt with it,” said James Angel, a professor of finance at Georgetown University’s McDonough School of Business.
Disney says Kubra was fired for cause
A company spokesperson sent a statement to Fortune that said Kubra was “fired for cause” in 2017, had “persistently made patently false claims for over two years,” and that the claims had been “thoroughly investigated and found to be utterly baseless.” In addition, it also said that MarketWatch “has been aware of the facts for months.”
Investors aren’t too worried
Shares were down only 0.12%, suggesting that investors are not terribly alarmed. Some experts that spoke with Fortune expressed doubts about the larger claims. “This is the first report that I’ve heard of,” said Joseph Bonner, a senior analyst for technology, media, and communications at equities analysis firm Argus Research Company. “I have to say that $6 billion sounds a little unbelievable.”
“Disney is a master of financial engineering,” Angel said. “If there’s a loophole available, would they have exploited it? I don’t doubt it. Would they have committed financial fraud? I’d be shocked.” He thought that, if anything had happened, it was more likely a mid-level manager trying to push their numbers up but that internal auditors would probably have uncovered the practice.
The whistleblower says she’s met with the SEC multiple times
Kubra told MarketWatch she had multiple phone and in-person meetings with SEC personnel.
And this could be the type of whistleblower report that the SEC would take seriously, although there is no evidence that the agency is even undertaking an investigation. “If they get a complaint from a financial analyst at a publicly-traded company alleging accounting irregularities, my bet is that they would give that a second look” rather than quickly dismissing it, said Andy Dunbar, general counsel and chief compliance officer at Bel Air Investment Advisors and a former SEC enforcement attorney. “And who knows what she told to the SEC? She could have a lot more detail.”
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