On Friday, September 9, the Department of Justice announced that it had entered into a Non-Prosecution Agreement with CSK Auto Corporation, a retailer of automotive parts and accessories which used to be publicly traded, to settle a criminal investigation into alleged securities law violations stemming from a corporate earnings manipulation and double-billing scheme. Under the terms of the agreement, CSK Auto will pay a $20.9 million penalty. The resolution of this matter is the latest in a series of matters being handled by both DOJ and the SEC regarding the events at CSK Auto.

According to the Press Release from DOJ, "certain employees manipulated CSK’s largest and most lucrative vendor allowance program by concealing amounts it had recognized based on anticipated purchases that ultimately did not take place … [and] applying collections for allowances from subsequent years to cover shortfalls in collections from prior years and by moving uncollectible balances to subsequent years." The result was that it "gave the false appearance that CSK had collected or was going to collect vendor allowances that it had already recognized as earnings."

DOJ further stated that the agreement not to prosecute the company (or O’Reilly Automotive Inc., the company which subsequently acquired CSK Auto) was based on CSK Auto’s "timely, voluntary and complete disclosure of the illegal conduct;" CSK Auto’s and O’Reilly’s "thorough cooperation with the government’s investigation;" and their "extensive remedial efforts pertaining to … internal training, compliance and reporting."

DOJ has previously brought charges against three former CSK executives (Don Watson, CSK Auto’s former chief financial officer, Edward O’Brien, the former controller, and Gary Opper, the former director of credits and receivables), all of whom have pleaded guilty.

The SEC previously settled its matter with CSK Auto by entering a cease-and-desist order in an administrative proceeding. In doing so, the Commission considered the "remedial acts promptly undertaken by [CSK Auto] and cooperation afforded the Commission staff." The SEC also brought a case against Messrs. Watson, O’Brien and Opper, as well as Martin Fraser, the former President and COO, which is still pending.

The SEC also remains in litigation with Maynard L. Jenkins, the former chief executive officer of CSK Auto Corporation, seeking reimbursement of more than $4 million that he received in bonuses and stock sale profits while CSK Auto was the committing accounting fraud. At the time it sued Mr. Jenkins, the SEC described the case as the first clawback case under the Sarbanes-Oxley Act against an individual who was not alleged to have otherwise violated the securities laws. As discussed here, the SEC Enforcement Staff had recommended a settlement of that matter for less than half the amount the SEC originally sought. The Commissioners rejected that settlement, with some Commissioners believing the amount of the settlement was too low and others taking the position that the case should not have been brought at all. The case against Mr. Jenkins is now scheduled for trial on August 17, 2012, although the Court has ordered a settlement conference, scheduled for September 27, 2011.

Read more: at www.fedseclaw.com http://www.fedseclaw.com/2011/09/articles/criminal-charges-in-securities/justice-department-announces-settlement-with-csk-auto-209-million-fine-and-a-nonprosecution-agreement-in-earnings-manipulation-case/#ixzz1XorERv4b