SEC looks at Liberty’s accounting

Sunday, July 27, 2003

July 28, 2003

PORT ST. LUCIE, Fla. - Earlier this month, PolyMedica, which owns Liberty Medical Supply, watched its stock plunge 18% following news that the Securities and Exchange Commission (SEC) had begun looking into a questionable accounting practice and that lawyers for shareholders announced a class-action lawsuit, accusing the company of improperly inflating its bottom line by classifying advertising expenses as assets.

The stock’s downturn came just three weeks after hitting a 52-week high. The high followed a report by the Centers for Disease Control and Prevention, stating that more than one-third of Americans born in 2000 are at risk of contracting adult-onset diabetes. That’s bad news for those who end up with diabetes, but good news for mail-order pharmacy giant Liberty Medical, which sells and ships diabetes test strips and respiratory products.

The SEC inquiry and shareholder lawsuit focus on a longstanding practice at PolyMedica. Since 1996, when the company acquired Liberty Medical, it has recorded its television advertising expenses as assets, which it amortizes over two to four years.

The company asserted that the practice is legal, if unusual. Stockholders claim the practice hid the company’s true operating expenses from investors. PolyMedica is working with the SEC to resolve the issue, a company official told the Boston Globe in July.