From today's SEC Digest:
SEC SUES NORTHERN VIRGINIA TELECOMMUNICATIONS COMPANY AND ASSOCIATED INDIVIDUALS FOR ACCOUNTING VIOLATIONS
The Commission today filed civil actions in federal district court in Alexandria, Virginia against FastComm Communications Corporation, a telecommunications company based in Sterling, Virginia, and Charles L. DesLaurier, formerly FastComm's Vice President of Contracts and Administration. The complaint charged that FastComm, with the knowledge and participation of DesLaurier, engaged in certain transactions that led to the fraudulent recognition of revenue in certain of its financial statements during 1993 and 1994. In addition, FastComm failed to disclose a related-party transaction between the Company president and his brother-in-law that accounted for nearly 20% of the sales revenue for the quarter ended, July 31, 1993.
According to the complaints, FastComm recognized $185,000 in revenue on a sale of product that was not completely assembled as originally shipped. The complaint as to DesLaurier alleges that he had directed the shipment of incomplete product and ordered the backdating of Company documentation to conceal that certain shipments had been made after the end of the quarter.
The complaints further allege that FastComm similarly recognized revenue of $579,000, or one-third of its sales revenue for the quarter ended, February 5, 1994, on two sales of incomplete product to a South American customer. When finished product was not available for shipment to satisfy these orders by the end of the quarter, the complaints allege that unfinished product was shipped to a freight-forwarder's warehouse to be held until recalled by FastComm. In addition, these sales were contingent on a letter of credit from the customer, which was never provided, and a further sale of the product by the customer to an end-user. The complaint as to DesLaurier alleges that DesLaurier had ordered the shipment of unfinished product; that he had known of the conditional nature of the sale by assisting in the drafting of a side letter; and that he had been aware of the backdating of Company documentation to conceal that this shipment of product had been made after the close of the fiscal quarter ended, February 5, 1994.
Simultaneous with the filing of the complaints, FastComm and DesLaurier each consented, without admitting or denying the allegations in the complaints, to the entry of final judgments as to each of them. The final judgment as to FastComm enjoins it from future violations of the antifraud, the periodic reporting, books and records and internal control provisions of the Securities Exchange Act of 1934. The final judgment as to DesLaurier enjoins him from future violations of the Exchange Act's antifraud provisions and aiding and abetting violations of the Exchange Act's periodic reporting provisions, and orders that he pay a civil penalty of $20,000.
In a related matter, on September 28, 1999, the Commission instituted and simultaneously settled public administrative proceedings against two other FastComm officers: CEO Peter C. Madsen and CFO Mark Rafferty. The Commission made findings that Madsen and Rafferty were each a cause of certain of the Company's violations of the Exchange Act's periodic reporting, books and records and internal controls provisions. Madsen and Rafferty each consented, without admitting or denying the Commission's findings, to the issuance of an order directing each of them to cease and desist from causing any violation or any future violation of the periodic reporting, books and records and internal controls provisions of the Exchange Act. In addition, Madsen and Rafferty each agreed, in a separate civil action in federal district court, to pay $20,000 in
civil penalties. [SEC v. FastComm Communications Corporation, Civil Action No. 99-1448-A, ED Va.]; [SEC v. Charles L. Deslaurier, Civil Action No. 99-1449-A, ED Va.] (LR-16310; AAE Rel. 1187)
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