(September 28 – 08:50 ET) – The Securities and Exchange Commission launched a crackdown on “cooking the books” yesterday, filing 11 enforcement actions for fraud and related accounting and reporting abuses by six different public companies.
The SEC says its charges allege a variety of accounting abuses designed to mislead the investing public about the state of the issuers’ financial health. These actions are part of a coordinated effort by the SEC and the U.S. Attorney for the Central District of California to highlight incidents of financial fraud occurring on the West Coast.
Valerie Caproni, Regional Director for the SEC’s Pacific Region, stated, “These actions underscore that the SEC has a zero tolerance policy toward public companies and their officers who attempt to undermine the integrity of our securities markets by engaging in fraudulent accounting practices to the detriment of public investors.”
The charges include a case against Sirena Apparel Group Inc., alleging that in order to meet revenue and earnings projections, its officers caused the firm to report false financial information in a press release and a quarterly report, overstating revenue by 13% and earnings by 30%. This was achieved by holding open a quarterly reporting period until Sirena had reached its sales target for that period by resetting the dates on computer clocks, allowing revenue to be recognized earlier.
Along with SEC charges, a federal grand jury in Los Angeles has named a couple of the firm’s officers in a 10-count indictment alleging various securities fraud violations. If convicted the officers face as much as 95 years in federal prison.
Another firm, Craig Consumer Electronics Inc., hid its precarious financial condition by inflating accounts receivable on a daily basis. It accomplished this by delaying the processing of the sales returns which it was not permitted to borrow against; and inflating inventory by transferring defective goods, which it was not permitted to borrow against, into “new” or “refurbished” categories. The company also overstated revenue and earnings by recognizing $1.3 million in revenue from sales of defective product. Its officers have been charged with various fraud counts. The SEC is considering whether to revoke the company’s registration.
YourBankOnline, a Seattle-area software company, is accused of fraud by issuing a press release drastically overvaluing the company’s primary asset, and triggering a sharp run-up in its stock price. The firm acquired an Internet banking software program, claiming it paid $10 million in cash and stock. The SEC says the firm only had $138 in cash at the time, and that the software was worth far less than $10 million. After the software acquisition, the company sent out numerous press releases touting the software, which caused its stock to rise from less than $1 to $32 over a two-week trading period on the OTC Bulletin Board.
Premier Laser Systems Inc., Countryland Wellness Resorts Inc., and Cylink Corp. also face charges.
-IE Staff