It’s all in the timing

Maurice Newman, the former chairman and CEO of Sirena Apparel Group, and, Richard Gerhart, the ex-chief financial officer of the women’s swimwear manufacturer, have been sued for causing false figures to be issued in a press release and a quarterly report for the period ending 31 March 1999. The complaint alleges that they overstated the company’s revenue by US$3.6 million (or 13 per cent) and its earnings by US$1.3 million (or 30 per cent). The SEC claims that they told subordinates at Sirena to keep open the records for the first quarter of 1999 until the business had achieved its three-month sales target. This was effected by adjusting the date on the company’s computer clock to the end of March until the goals were attained on 12 April 1999. The clock setting determined the dating of invoices and revenue recognition. Newman and Gerhart advised their external auditors that there were no sales problems in the quarter in question and instructed staff to produce bogus shipping records. They have been charged with “securities fraud, falsifying Sirena’s books and records, knowingly circumventing Sirena’s internal controls, and lying to an accountant and with aiding and abetting Sirena’s violations of the periodic reporting and record-keeping provisions of the federal securities laws.” Newman has elected to pay a US$30,000 fine and accept a permanent injunction without admitting or denying responsibility. Gerhart also faces a permanent injunction, a financial penalty and an order that prohibits him from acting as a senior manager of a public company. The two men also face criminal charges for securities fraud through their attempt to misrepresent the company’s financial position and profitability to investors. If convicted, they each face maximum jail terms of more than eighty years.