SEC Brings Case Against Indiana Manufacturer and Eight Executives and Accountants for Accounting Fraud at English Subsidiary
On Monday, January 30, 2012, the SEC filed two lawsuits in federal court in Indiana and commenced two administrative proceedings stemming from an accounting fraud scheme at the Thornton Precision Components ("TPC"), which is the Sheffield, England subsidiary of Symmetry Medical Inc. ("Symmetry"), an Indiana-based manufacturer of medical devices and aerospace products. According to the Commission, the accounting fraud at TPC "was so pervasive that it distorted the financial statements of the parent company." In those proceedings, the Commission settled charges with Symmetry and eight individuals, including the parent company's CEO and the subsidiaries' outside accountants.
In one of the cases filed in federal court in Indiana, the SEC alleged that from 2004 to 2007, the four defendants, Richard Senior (who was Symmetry's VP for European Operations), Matthew Bell (TPC's former Finance Director), Lynne Norman (TPC's former Controller), and Shaun Whiteley (a former TPC management accountant), "engaged in a scheme to fraudulently inflate TPC's financial results by systematically understating expenses and overstating assets and revenues." The SEC further alleged that the group improperly and prematurely recognized revenue, improperly capitalized expenses, overvalued inventory and understated costs of goods sold, and then concealed their actions by falsifying corporate books and records and by lying to Symmetry's auditors. Messrs. Senior and Bell and Ms. Norman made false certifications regarding the accuracy of the financial information reported to Symmetry by TPC. In addition, Messrs. Senior and Bell each received bonuses and sold Symmetry stock at prices they knew or recklessly disregarded were fraudulently inflated by the accounting fraud taking place at TPC.
The four agreed to settle the SEC's charges (subject to Court approval) by agreeing to be permanently enjoined against future violations of the statutes and rules each is alleged to have violated. Messrs. Senior and Bell and Ms. Norman consented to a director-and-officer bar, while Messrs. Bell and Whiteley and Ms. Norman agreed to be barred from appearing before the Commission as accountants, Mr. Senior consented to disgorgement and interest totaling more than $186,000 which will be deferred pending asset discovery.
In a separate complaint filed in federal court in Indiana, Symmetry's former CEO, Brian Moore agreed to reimburse $450,000 to Symmetry for bonuses and other incentive-based and equity-based compensation under Section 304 of the Sarbanes-Oxley Act. The settlement is subject to court approval.
The Commission also brought a settled administrative proceeding against Symmetry CFO Fred Hite, finding that he failed to provide an internal audit status report concerning TPC to Symmetry’s Audit Committee. He agreed to pay a $25,000 penalty and reimburse $185,000 to Symmetry for the bonuses he received, as required under SOX Section 304.
In that same settled administrative proceeding, the SEC also settled with Symmetry. The company agreed to a cease-and-desist order against future financial reporting, books-and-records and internal controls violations.
In a separate administrative proceeding, the SEC settled with two associate chartered accountants who worked on Ernst & Young LLP UK’s audits of TPC in the United Kingdom – Christopher Kelly (the former audit partner) and Margaret Hebb (the former audit manager). The Commission found that Mr. Kelly and Ms. Hebb engaged in improper professional conduct by failing to properly audit TPC’s accounts receivable balances and inventory. The two were suspended from appearing or practicing before the SEC as accountants, but can seek reinstatement after two years.
Stephen L. Cohen, Associate Director of the SEC’s Division of Enforcement said that "[t]he accounting fraud orchestrated by TPC executives had a ripple effect right up to the financials of the parent company. Symmetry shareholders were investing their money – and Symmetry and TPC executives were collecting their bonuses – based in part on inflated numbers." he added that the "significant failures by two outside auditors … helped this fraud to continue undetected."