The following is an excerpt from the SEC website:
June 27, 2011
The Securities and Exchange Commission today announced charges against two former Basin Water, Inc. executives with fraudulently inflating its revenues, beginning with the company’s first financial report after it went public.
The SEC alleges that former Basin Water chief executive officer Peter L. Jensen and former chief financial officer Thomas C. Tekulve, Jr. improperly recognized revenue to disguise the company’s true financial performance in its 2006 and 2007 quarterly and annual reports. The SEC also alleges that Jensen sold and donated his own Basin Water shares before the company’s true financial condition was revealed, reaping millions of dollars in trading profits and tax benefits. Basin Water built, sold, and leased water treatment systems that cleaned contaminated groundwater.
The SEC’s complaint, filed June 24, 2011, alleges that Jensen and Tekulve improperly included revenue from six sales transactions in Basin Water’s financial reports filed with the Commission. The SEC alleges that, depending upon the transaction, the sale was not final; did not have the customer’s required acceptance of the system; allowed the customer to pay nothing until the customer resold the system, even though there was no resale; did not provide enough assurance that the customer would pay for the system; or where the company had not shipped the system. The SEC alleges that as a result Basin Water overstated its 2006 revenues by 13% and its 2007 revenues by 74% and overstated its quarterly 2006 and 2007 revenues by 10% to 161%. The SEC further alleges that, before the company’s true financial condition was revealed, Jensen sold or donated approximately 1.9 million Basin Water shares for over $9.1 million in trading profits and tax deductions.
In February 2009, Basin Water restated its financial results. In July 2009, the Rancho Cucamonga, Calif.-based company declared Chapter 11 bankruptcy and is now defunct.
The SEC’s complaint charges Jensen and Tekulve with violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and against Tekulve only, 13b2-2 thereunder. The complaint also alleges control person liability, pursuant to Section 20(a) of the Exchange Act, against Jensen and Tekulve for violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The complaint further charges Jensen and Tekulve with aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The complaint also alleges that Jensen and Tekulve failed to comply with Section 304 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The complaint seeks against each defendant permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains plus prejudgment interest, a financial penalty, and Sarbanes-Oxley Act reimbursement.”
This is a photo of the National Register of Historic Places listing with reference number 7000063
Showing posts with label EXECUTIVE FRAUD. Show all posts
Showing posts with label EXECUTIVE FRAUD. Show all posts
Tuesday, July 5, 2011
Sunday, January 16, 2011
CLOTHING EXECUTIVE CHARGED WITH FRAUD AND INSIDER TRADING
Finding honest management is very difficult. When I was young I had training with the loss prevention manager at a big box retail store. He told me several stories of some of the memorable people he had caught stealing. This included various store personnel including managers. I asked him how he could tell if someone might be a thief. He replied without hesitation that "Everyone steals if they think they can get away with it." As an investor I certainly have come to regret not keeping in mind the words of the old store detective.
The following case involves alleged fraud committed against investors in a line of children’s clothing called Carter's. Following is an excerpt from the SEC web page:
Washington, D.C., Dec. 20, 2010 — The Securities and Exchange Commission today charged a former Executive Vice President of children's clothing marketer Carter's Inc. for engaging in financial fraud and insider trading. The SEC alleges that Joseph M. Elles's misconduct caused an understatement of Carter's expenses and a material overstatement of its net income in several financial reporting periods.
The SEC also announced that it has entered a non-prosecution agreement with Carter's under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles's unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC's new cooperation initiative earlier this year.
"Elles's trickery in secretly awarding excessive discounts deceived and damaged Carter's investors," said Robert Khuzami, Director of the SEC's Division of Enforcement. "While that was the wrong thing to do, Carter's did the right thing by promptly self-reporting the misconduct, taking thorough remedial action, and extensively cooperating with our investigation, for which it received the benefits of a non-prosecution agreement. In such circumstances, incentivizing appropriate corporate response to misconduct through the use of non-prosecution agreements is in the best interest of companies, shareholders and the SEC alike."
William P. Hicks, Associate Director of Enforcement in the SEC's Atlanta Regional Office, added, "Elles deceived accounting personnel at Carter's and caused financial misstatements to investors. After his misconduct inflated the company's earnings, Elles exercised options for the purchase of Carter's common stock and sold the resulting shares for his personal gain."
According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.
The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.
After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.
Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in any further investigation conducted by the SEC staff as well as in the enforcement action filed against Elles.
The SEC's complaint alleges that Elles violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and an officer and director bar against Elles."
The above shows the conumdrum that the government finds itself in when pursuing justice in cases involving securities manipulation. The people harmed by the fraud are the investors and the investors are often harmed by the government prosecuting the fraud since the value of their investment may be less than what it would have been had there been no prosecution of the criminals.
Being a corporate executive is a sweet deal since after cheating your investors you can then hold them hostage to thwart criminal prosecution. Someone who steals $100.00 worth of clothing from investors in a store may receive a much greater punishment than one who steals millions of dollars through securites fraud from investors in that same store.
The following case involves alleged fraud committed against investors in a line of children’s clothing called Carter's. Following is an excerpt from the SEC web page:
Washington, D.C., Dec. 20, 2010 — The Securities and Exchange Commission today charged a former Executive Vice President of children's clothing marketer Carter's Inc. for engaging in financial fraud and insider trading. The SEC alleges that Joseph M. Elles's misconduct caused an understatement of Carter's expenses and a material overstatement of its net income in several financial reporting periods.
The SEC also announced that it has entered a non-prosecution agreement with Carter's under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles's unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC's new cooperation initiative earlier this year.
"Elles's trickery in secretly awarding excessive discounts deceived and damaged Carter's investors," said Robert Khuzami, Director of the SEC's Division of Enforcement. "While that was the wrong thing to do, Carter's did the right thing by promptly self-reporting the misconduct, taking thorough remedial action, and extensively cooperating with our investigation, for which it received the benefits of a non-prosecution agreement. In such circumstances, incentivizing appropriate corporate response to misconduct through the use of non-prosecution agreements is in the best interest of companies, shareholders and the SEC alike."
William P. Hicks, Associate Director of Enforcement in the SEC's Atlanta Regional Office, added, "Elles deceived accounting personnel at Carter's and caused financial misstatements to investors. After his misconduct inflated the company's earnings, Elles exercised options for the purchase of Carter's common stock and sold the resulting shares for his personal gain."
According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.
The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.
After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.
Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in any further investigation conducted by the SEC staff as well as in the enforcement action filed against Elles.
The SEC's complaint alleges that Elles violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and an officer and director bar against Elles."
The above shows the conumdrum that the government finds itself in when pursuing justice in cases involving securities manipulation. The people harmed by the fraud are the investors and the investors are often harmed by the government prosecuting the fraud since the value of their investment may be less than what it would have been had there been no prosecution of the criminals.
Being a corporate executive is a sweet deal since after cheating your investors you can then hold them hostage to thwart criminal prosecution. Someone who steals $100.00 worth of clothing from investors in a store may receive a much greater punishment than one who steals millions of dollars through securites fraud from investors in that same store.
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