SEC AGREES TO A SETTLEMENT IN ALLEGED BOOK-COOKING CASE AGAINST BRITISH BASED FIRM

The following excerpt is from the SEC website:

January 30, 2012
“The Securities and Exchange Commission today announced four enforcement actions arising from an alleged financial fraud spanning several years at a British subsidiary of the NYSE-listed Symmetry Medical, Inc. (“Symmetry”).

First, the Commission announced today that it has filed and, subject to Court approval, simultaneously settled charges against Richard J. Senior, Matthew Bell, Lynne Norman and Shaun P. Whiteley arising from the alleged financial fraud. According to the Commission’s Complaint, the fraud was orchestrated and carried out by senior executives and accounting staff of the Sheffield, England-based Symmetry Medical Sheffield LTD, f/k/a Thornton Precision Components, Limited (hereinafter “TPC”), particularly by Senior, Bell, Norman and Whiteley, who were, respectively, Symmetry’s VP for European Operations, TPC’s Finance Director, TPC’s Controller and a TPC Management Accountant. According to the Complaint, the fraud involved the systematic understatement of expenses and overstatement of assets and revenues, and materially distorted the financial statements of the Indiana-headquartered Symmetry, into which TPC’s financials were consolidated, for a period running from Symmetry’s December 2004 initial public offering through its second fiscal quarter of 2007. The Complaint further alleges that during the fraud, Senior, Bell and Norman made false certifications as to the accuracy of the financial information reported to Symmetry by TPC, and lied to TPC’s outside auditors. Finally, the Complaint alleges that Senior and Bell sold Symmetry stock during the fraud, at prices each knew or recklessly disregarded were inflated by the fraud at TPC.

According to the Complaint, by their conduct, Senior, Bell, Norman and Whiteley violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Symmetry’s violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20, 13a-1 and 13a-13 thereunder; Senior and Bell also violated Section 17(a) of the Securities Act of 1933; and Senior, Bell and Norman also violated Exchange Act Rule 13b2-2. The four defendants’ signed Consents—which are subject to approval by the Court—provide that, without admitting or denying the Commission’s allegations, defendants Senior, Bell and Norman would be barred from serving as an officer or director of any public company. (Additionally, Bell, Norman and Whiteley each consented to be permanently barred, in follow-on administrative proceedings, from appearing or practicing before the Commission as accountants.) The final judgment to which Bell consented further orders that he is liable for disgorgement of $136,209 together with $50,728 in prejudgment interest thereon, but, based on his sworn financial statements and supporting documentation, waives payment of disgorgement and prejudgment interest; and the judgment to which Senior consented defers resolution of the monetary portion of his case pending the completion of asset discovery, with which Senior would be ordered to cooperate. Each defendant would also be permanently enjoined against future violations of the statutes and rules each is alleged to have violated.

The Commission also announced that it has filed, and, subject to Court approval, simultaneously settled, a civil action against Symmetry’s former CEO, Brian S. Moore, seeking reimbursement for bonuses and other incentive-based and equity-based compensation pursuant Section 304 of the Sarbanes-Oxley Act of 2002. The Commission’s Complaint alleges that Symmetry was required to restate its annual financial statements for 2005 and 2006, as well as other reporting periods, as a result of misconduct in the reporting of TPC’s financials. The Complaint further alleges that Moore received from Symmetry bonuses and incentive-based and equity-based compensation, and realized profits from the sale of Symmetry stock, during the 12-month periods following the restated financials, but has made no reimbursement thereof. The Complaint does not allege that Moore engaged in the fraud. Moore’s signed Consent—which is subject to approval by the Court—provides that, without admitting or denying the Commission’s allegations, Moore would agree to issuance of a Final Judgment ordering him make reimbursement of $450,000 to Symmetry.

The Commission further announced that, separately, it has instituted and simultaneously settled administrative proceedings against two Associate Chartered Accountants in the United Kingdom, Christopher J. Kelly and Margaret Hebb née Whyte, who were the former audit partner and audit manager, respectively, on Ernst & Young UK LLP’s audits of TPC for the 2004 through 2006 fiscal years (in the case of Kelly) and for the 2005 and 2006 fiscal years (in the case of Hebb). Kelly and Hebb consented to issuance of the Commission’s Order and the sanctions it imposed, without admitting or denying the Order’s findings. The Order found that both Kelly and Hebb engaged in improper professional conduct by, among other things, failing to properly audit TPC’s accounts receivable balances and inventory. Based on these findings, the Order suspended both Kelly and Hebb from appearing or practicing before the Commission as accountants, with the opportunity to seek reinstatement after two years. See Matter of Christopher J. Kelly, ACA and Margaret Hebb, ACA, Admin. Proc. File No. 3-____ (Jan. 30, 2012)

Finally, the Commission further announced that, separately, it has instituted and simultaneously settled administrative proceedings against Symmetry and its CFO, Fred L. Hite. Symmetry and Hite consented to issuance of the Commission’s Order and the sanctions it imposed, without admitting or denying the Order’s findings. With respect to Symmetry, the Order found that, as a result of the fraud at TPC, Symmetry (i) filed periodic reports with the Commission that included materially false and misleading financial statements in violation of Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 and (ii) maintained materially inaccurate books, records and accounts in violation of Exchange Act Section 13(b)(2)(a); and that Symmetry also failed to devise and maintain effective internal accounting controls in violation of Exchange Act Section 13(b)(2)(B). With respect to Hite, the Order found that by failing to provide an internal audit status report concerning TPC to Symmetry’s Audit Committee in July 2006, Hite violated Exchange Act Section 13(b)(5) and was a cause of Symmetry’s violation of Exchange Act Section 13(b)(2)(B); and that by failing to reimburse Symmetry for bonuses, incentive- and equity-based compensation, and Symmetry stock-sale proceeds he received during periods embraced by Symmetry’s restatement, Hite violated Section 304 of the Sarbanes-Oxley Act. Based on the foregoing findings, the Commission ordered Symmetry and Hite to cease-and-desist from committing or causing future violations of the relevant provisions, and ordered Hite to pay a $25,000 penalty and make reimbursement of $185,000 to Symmetry. “

SEC FILES CIVIL INJUNCTION IN ALLEGED STOCK INFLATION SCHEME

 The following excerpt is from the SEC website:

January 25, 2012
“On January 25, 2012, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against a former senior vice president and a vendor of InPhonic, Inc., a now-bankrupt online retailer of cellular phones that was headquartered in Washington, D.C. According to the Commission’s complaint, from late 2005 through early 2007, Len A. Familant, then an InPhonic senior vice president, and Paul V. Greene, president of telephone supplier Americas Premiere Corporation (“APC”), engaged in a fraudulent scheme involving a series of “round-trip transactions” to artificially inflate InPhonic’s financial results.

The Commission’s complaint, filed in federal court in the District of Columbia, alleges:
After the end of the third quarter of 2005 and each quarter in 2006, but before InPhonic reported its financial results, Familant obtained a total of almost $10 million in sham credits from APC and Greene. Familant and Greene entered into an unwritten, undisclosed agreement that InPhonic would repay APC by purchasing cellular telephones and repair services from APC at inflated prices and by paying for fake repairs.

InPhonic improperly recorded the false credits from APC as a decrease in cost of goods sold. InPhonic subsequently made repayments to APC in the form of overpayments for cellular telephones, repair services and fake repairs.

The round-trip scheme agreed to and implemented by Familant and Greene resulted in material understatements of InPhonic’s net loss (between 7% and 55%) in quarterly and annual filings with the Commission and material overstatements of InPhonic’s adjusted EBITDA in earnings releases from 2005-2007.

Familant and Greene concealed the fraudulent round-trip scheme. For instance, together they identified particular telephone models APC could provide to InPhonic at inflated prices without raising suspicion.

Greene hid the round-trip scheme from InPhonic’s independent auditors even after APC’s accountant had informed Greene that APC’s sham credit transactions with InPhonic were illegal.

Familant encouraged APC to hide its billing for phony services after Familant learned that APC’s accountant had told Greene, “[w]e cannot do that. That is fraud. . . .”

In October 2007, as InPhonic’s business was failing and after APC had been unable to fully recoup the credits, Greene sent an email to himself outlining a proposed lawsuit against InPhonic. Greene referred to “the fake credits that were negotiated with INPC that they were using to hit certain quarterly numbers.”
Greene is charged with violating, and aiding and abetting InPhonic’s and Familant’s violations, of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 10b-5(a) and (c). Greene is also charged with violating the books and records provision of Exchange Act Rule 13b2-1, and with aiding and abetting InPhonic’s violations of the reporting and books and records provisions of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC is seeking a permanent injunction, disgorgement, civil penalties and prejudgment interest against Greene.

Familant has agreed to settle the Commission’s charges without admitting or denying the allegations against him. Familant has consented to a final judgment enjoining him from violating the antifraud provisions of Section 10(b) of the Exchange Act and Exchange Act Rules 10b-5(a) and (c), and the books and records provision of Exchange Act Rule 13b2-1, and from aiding and abetting InPhonic’s violations of the reporting and books and records provisions of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13. Familant also has agreed to pay a $50,000 civil penalty and to be barred from serving as an officer or director of a public company. The proposed settlement with Familant is subject to the approval of the District Court.”