FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23191 / February 6, 2015
Securities and Exchange Commission v. Joseph A. Kostelecky, Civil Action No. 1:15-cv-00017-CSM (D.N.D.)
SEC Charges Sales Executive in North Dakota for Enabling Financial Fraud
The SEC alleges that Joseph A. Kostelecky, who was the company's only senior executive in the U.S., was among those responsible for Poseidon's fraudulent reporting of approximately $100 million in revenues for contracts that were either non-existent or uncollectable. Poseidon's business in the U.S. was focused on renting above-ground fluid storage tanks for oil-and-gas hydraulic fracturing operations. According to the SEC's complaint filed in federal court in North Dakota, Kostelecky directed Poseidon's accounting staff to record revenues for inadequately documented transactions and made false assurances to several members of Poseidon's management in Canada that transactions with U.S. customers were valid and collectible. Poseidon consequently issued three quarterly financial statements from January to November 2012 with materially inflated revenues while its stock was trading in the U.S. and Canada. The magnitude of the overstatements was substantial, comprising approximately 64 to 72 percent of total revenues reported over the first three fiscal quarters of 2012.
When Poseidon later announced publicly that it would need to restate its financials due to the inflated revenues, its stock price collapsed and the company eventually filed for bankruptcy. Poseidon was based in Calgary and operated a subsidiary with offices in Denver and Dickinson, N.D., where Kostelecky still resides.
Kostelecky agreed to settle the SEC's charges by paying a $75,000 penalty and being barred from serving as an officer or director of a U.S. publicly-traded company. Without admitting or denying the SEC's allegations, Kostelecky consented to a final judgment enjoining him from violations of Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC's action against Kostelecky was filed in conjunction with an enforcement proceeding by the Alberta Securities Commission against Poseidon's senior management, including Kostelecky.
The SEC's investigation was conducted by Lee Robinson, Donna Walker, and Ian Karpel in the Denver Regional Office. The SEC appreciates the assistance of the Alberta Securities Commission.
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