The Securities and Exchange Commission has charged New York-based technology consulting firm Volt Information Sciences and two of its former officers with securities fraud.
The SEC filed civil injunctive complaints against the company on Thursday in the U.S. District Court for the Southern District of New York in connection with improper accounting.
In its complaint against Jack J. Egan, Jr. Volt’s former CFO, the SEC alleged that he participated in a scheme to materially overstate revenue. For Volt’s fourth quarter and fiscal year ended Oct. 28, 2007, Egan signed and filed financial statements reporting $7.55 million of revenue that had not been earned and was not recognizable under U.S. GAAP.
The $7.55 million of improper revenue caused Volt’s net income for its fourth quarter and fiscal year ended Oct. 28, 2007, to be materially overstated. The complaint further alleges that the scheme relied on fabricated paperwork purporting to be a contract selling software to a customer. Egan knew that any sale of the software was impossible because Volt intended to lease the same software to the same customer the following year.
Nevertheless, Egan authorized that the $7.55 million in improper revenue be included in Volt’s consolidated income statement for 2007, which were included in Volt’s 2007 Form 10-K filed with the SEC on Jan. 11, 2008, as amended by Form 10-K/A filed with the Commission on February 25, 2008, as well as included in an earnings release on Form 8-K furnished to the Commission on Dec. 20, 2007. Egan signed the fraudulent 2007 Form 10-K and subsequent SEC filings that included the same overstatement of revenue. In addition, the complaint alleges that Egan mislead Volt’s external auditors and he signed one or more certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading.
The SEC complaint charged Egan with violations of the securities laws and charged him with aiding and abetting violations by the company. The SEC said it seeks that he be permanently enjoined, ordered to pay a civil money penalty, and prohibited from acting as an officer or director.
In addition to the complaint against Egan, the SEC filed a settled civil action against Volt and Debra L. Hobbs, the former CFO of the Volt subsidiary where the fraud originated. Without admitting or denying the complaint's allegations, Volt agreed to be enjoined from violating the securities laws. The SEC said the company cooperated during the investigation and has undertaken significant remediation efforts. Without admitting or denying the complaint’s allegations, Hobbs agreed to be enjoined from violating the securities laws.
The judgment provides that the court will later determine issues relating to a civil money penalty and other remedies. Hobbs has agreed to cooperate with the SEC. The SEC noted that its settlements with Volt and Hobbs are subject to court approval.