On January 14, 2014, the SEC filed a settled civil enforcement action charging two former senior officers of a subsidiary of public company with falsifying books, records, and accounts and circumventing internal controls. Complaint, SEC v. Hohol, No. 14-CV-00041 (E.D. Wis. filed Jan. 14, 2014). The SEC alleged that between 2008 and 2011 the defendants made and caused others to make false accounting entries in the subsidiary’s general ledger. These false entries included fictitious revenue accruals, the improper reclassification of expenses as inventory and the improper reclassification of prepaid assets as expenses. The SEC alleged that the defendants generated false invoices and forged other documents to support these entries. The SEC further alleged that the purpose of the false entries was to artificially increase the subsidiary’s monthly earnings before taxes (“EBT”) to meet internal financial performance projections and to make it appear that the subsidiary was profitable throughout the relevant period. The alleged actions inflated the subsidiary’s EBT by $64 million. Ultimately, the overstated EBT was consolidated into the parent company’s financial statements filed with the SEC. Based on these allegations, the defendants settled, on a neither admit nor deny basis, to charges of Section 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), SEC Rule 13b2-1, and aiding and abetting the parent company’s violations of Section 13(b)(2)(A) of the Exchange Act. The defendants consented to permanent injunctions, the disgorgement of their performance bonuses awarded during the period in question and prejudgment interest. Penalties were not imposed due the defendants’ current financial conditions.