SEC Charges Former Senior Executives of Public Company Subsidiary with Falsifying Financial Records and Circumventing Internal Controls
The Securities and Exchange Commission announced that on January 14, 2014, the Commission filed a civil injunctive action in federal district court Milwaukee, Wisconsin, charging Christopher Hohol (“Hohol”) and Brian Poshak (“Poshak”), formerly the senior vice president for operations and the controller, respectively, of Veolia Special Services (“Special Services”), a fourth-tier United States subsidiary of Veolia Environnement S.A. (“Veolia”), a multinational utilities and environmental services company, with falsifying books, records, and accounts and circumventing internal controls in order to overstate Special Services’ earnings before taxes (“EBT”) over a period of at least three years.
The Commission’s complaint alleges that beginning no later than January 2008 and continuing through February 2011, Hohol, who was the most senior executive at Special Services, and Poshak, among other things, made and caused others to make false accounting entries in Special Services’ general ledger, including entries for fictitious revenue accruals, and entries that improperly reclassified expenses as inventory and improperly reclassified expenses (such as rental equipment, including industrial tools and diving gear) as prepaid assets, in order to artificially increase Special Services’ monthly EBT to meet internal financial performance projections and create the false appearance that Special Services consistently was profitable. The complaint further alleges that both Hohol and Poshak signed monthly certifications falsely verifying the accuracy of Special Services’ financial information and efficacy of Special Services’ internal controls. The complaint also alleges that Poshak forged invoices and other documents to support the false accounting entries and to conceal the scheme. According to the complaint, as a result of Hohol’s and Poshak’s misconduct, Special Services overstated its EBT by a total of approximately $64 million. The complaint also alleges that, as a result of their misconduct, Hohol and Poshak received $136,000 and $28,000, respectively, in ill-gotten bonus payments that were triggered by the inflated financial performance of Special Services. The complaint further alleges that the false financial information provided by Special Services was reported up through several intermediate subsidiaries and, ultimately, was consolidated into the parent company’s publicly disclosed financial statements, which were filed with and furnished to the Commission.
The complaint charges Hohol and Poshak with violating Section 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 13b2-1 thereunder, and aiding and abetting Veolia’s violations of Section 13(b)(2)(A) of the Exchange Act.
Without admitting or denying the allegations in the complaint, Hohol and Poshak have consented to the entry of final judgments that permanently enjoin them from violating Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder, and aiding and abetting violations of Exchange Act Section 13(b)(2)(A). Hohol also has agreed to disgorge $106,000, and Poshak has agreed to disgorge $28,000, together with prejudgment interest in the amount of $3,500. The settlements, which are subject to court approval, take into account Hohol's and Poshak’s current financial condition.
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