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Friday, April 3, 2015

SEC ACCUSES EXECUTIVE WITH USING FALSE ACCOUNTING ENTRIES TO INFLATE QUARTERLY REVENUES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
04/01/2015 02:45 PM EDT

The Securities and Exchange Commission today charged the owner and chief executive of a North Carolina business with defrauding a publicly-traded telecommunications company and its shareholders during and after its acquisition of his business.

The executive, Timothy Scronce, agreed to settle the charges against him without admitting or denying the SEC’s findings.  Scronce consented to the SEC’s order requiring him to return his allegedly ill-gotten gains with interest, pay a civil penalty, and be barred for 10 years from serving as a public company officer or director.

Bloomingdale, Ill.-based PCTEL Inc. acquired assets of TelWorx Communications LLC and three related telecommunications companies owned or controlled by Scronce for cash and a stock-based earn-out. According to the SEC’s order, Scronce used false accounting entries to inflate TelWorx’s quarterly revenues and earnings in the months leading up to the purchase to inflate the price PCTEL paid for the companies.  Scronce indirectly defrauded PCTEL’s shareholders because TelWorx’s false financial statements were incorporated into an SEC filing made by PCTEL.  After the asset purchase was completed, while employed by PCTEL, Scronce continued to conceal his fraudulent activities.  He falsified PCTEL’s books and records and circumvented the company’s internal controls by recording bogus transactions

In separate settled administrative proceedings instituted today, the SEC charged two former TelWorx employees who worked with Scronce at PCTEL after the asset purchase: senior vice president Marc Mize and controller Michael Hedrick.  The SEC’s orders find that Mize played a role in recording the bogus transactions after the asset purchase and that Hedrick participated in the fraud and recorded bogus transactions.  Mize and Hedrick settled the SEC’s charges without admitting or denying the SEC’s findings.  Mize agreed to pay a $25,000 penalty and Hedrick agreed to disgorge $25,000 plus prejudgment interest.  Hedrick entered into a cooperation agreement with the SEC.

“Scronce used accounting gimmicks to make TelWorx appear more valuable to PCTEL than it actually was,” said Robert Burson, Associate Regional Director of the SEC’s Chicago office. “Scronce compounded his deception by recording fake transactions even after the acquisition was complete.”

The SEC’s order instituting a settled administrative proceeding against Scronce finds that he violated the anti-fraud, books and records, and internal controls provisions of the Securities Exchange Act of 1934.  The SEC’s order also finds that he caused PCTEL’s violations of the books and records and reporting provisions of the Exchange Act.

The SEC’s order against Hedrick finds that he caused Scronce’s violations of the anti-fraud provisions of the Exchange Act and violated the books and records and internal controls provisions.  The order also finds that Hedrick caused PCTEL’s violations of the books and records and reporting provisions.

The SEC’s order against Mize finds that he violated the books and records and internal controls provisions and caused PCTEL’s violations of the books and records provisions of the Exchange Act.

The SEC’s investigation, which is ongoing, has been conducted by Jen Peltz, Nicholas Eichenseer, Luz Aguilar and Robert M. Moye and supervised by Paul Montoya of the Chicago Regional Office.