The Commission concluded a long running financial fraud action yesterday, settling with the former CFO of Fischer Imaging Corporation, Rodney B. Johnson, and a former sales executive of the company, Robert Hoffman. SEC v. Rivelli, Civ. No. 05-CV-1039 (D. Colo. June 7, 2005).
Fischer is a medical equipment company based in Denver Colorado. The complaint alleges that Messrs. Johnson and Hoffman, along with four other defendants, participated in a scheme in which the company improperly recognized revenue. The other defendants were: Louis Rivelli, the former CEO and president; Stephen Burke, a former CFO; Teresa Ayers, chair of the audit committee; and Craig Stevenson, a senior sales executive.
Under the scheme revenue was recognized as income on sales that were not sales. Fischer product was shipped to a third party warehouse controlled by the company. Fischer paid for the storage of the product. The company also insured the equipment.
Messrs. Rivelli, Johnson, Stevenson and Hoffman were also involved in creating a policy regarding contingent sales. Under that policy revenue was recognize on sales where there were side letters. The recognition occurred before the contingency was resolved. This is contrary to GAAP. In addition, Messrs. Rivelli, Johnson and Burke were involved in the misstatement of the inventory account and other improper accounting practices. Each defendant was alleged to have furnished false or misleading documents or information to the outside auditors. Based on these factual claims the complaint alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2) and 13(b)(5).
To resolve the case Mr. Johnson consented to the entry of a permanent injunction prohibiting future violations of Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5) and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B. He also agreed to pay disgorgement of $36,761 along with prejudgment interest. A penalty was not imposed based on his financial condition. He was however barred from serving as an officer or director for five years.
Mr. Hoffman settled by consenting to the entry of a permanent injunction prohibiting him from aiding and abetting violations of Exchange Act Section 13(a). The Commission dismissed claims against Mr. Hoffman for aiding and abetting violations of Exchange Act Section 10(b) according to Litigation Release No. 3238 (Feb. 2, 2011).
In resolving the case the Commission also dropped claims that Messrs. Johnson and Hoffman obtained “substantial personal profits as a result of their participation in Fischer’s material misstatements . . . “ As to Mr. Johnson this was about $191,000 from the sale of options. As to Mr. Hoffman this was bonuses of at least $80,000 and net profits on the sale of options of about $81,000. The Commission also dropped claims based on Securities Act Section 17(a) and Exchange Act Sections 13(b)(2) and 13(b)(5) as to Mr. Hoffman.
Previously the Commission settled with each of the other individual defendants. The year prior to filing this action, the SEC settled in an administrative proceeding with the Company.