The U.S. Securities and Exchange Commission has launched a civil suit alleging a massive fraud by former star CEO “Chainsaw Al” Dunlap.

The SEC today filed a civil injunctive action in U.S. District Court in Miami, charging five former officers of Sunbeam Corp. and the firm’s former auditor from Arthur Andersen LLP, with fraud “resulting in billions of dollars of investor losses”.

The defendants are: Sunbeam’s former CEO and chairman Albert Dunlap; former principal financial officer Russell Kersh; former controller Robert Gluck; former vice presidents Donald Uzzi and Lee Griffith; and Arthur Andersen partner Phillip Harlow. It also settled administrative proceedings against Sunbeam and its former general counsel, David Fannin.

The SEC alleges that senior management of Sunbeam, led by Dunlap and Kersh, engaged in a fraudulent scheme to create the illusion of a successful restructuring of Sunbeam to “facilitate a sale of the company at an inflated price”.

According to the complaint, the defendants employed a laundry list of fraudulent techniques, including creating “cookie jar” revenues, recording revenue on contingent sales, accelerating sales from later periods into the present quarter, and using improper bill and hold transactions.

Dunlap was hired by Sunbeam as a turnaround specialist in July 1996 to restructure the ailing company. Dunlap placed Kersh in charge of Sunbeam’s finances, and the pair promised a rapid turnaround. The SEC says they then employed improper accounting techniques and undisclosed non-recurring transactions to meet promised sales and earnings figures. These actions inflated the price of Sunbeam shares to a high of US$52 per share in March 1998.

The SEC says the illegal conduct began at year-end 1996 with the creation by Kersh and Gluck of inappropriate accounting reserves, which were then used to inflate income in 1997, thus contributing to the false picture of a rapid turnaround.

It says that for fiscal 1997, at least US$60 million of Sunbeam’s record US$189 million in earnings came from accounting fraud. Harlow, a partner at Arthur Andersen, authorized unqualified audit opinions on Sunbeam’s 1996 and 1997 financial statements although he was aware of many of the company’s accounting improprieties and disclosure failures.