SEC and DOJ Charge Executives with Accounting Fraud

The SEC and the DOJ charged three executives of a shipbuilding company that contracted with the U.S. Navy for fraudulently overstating revenues and earnings to investors.

In a Complaint filed with the District Court for the Southern District of Alabama, the SEC alleged that the executives conducted a "deceptive scheme" in order to exceed consensus estimates for revenues and earnings before tax and interest, which the SEC noted is an important metric utilized by both analysts and investors. The SEC asserted that the executives then made public to investors the reports containing overstated revenue and earnings before interest and taxes. Additionally, the SEC said that the executives lied to company auditors by attempting to conceal the fraud. The SEC charged the executives with violating Exchange Act Section 10 ("Regulation of the Use of manipulative and deceptive devices") and Exchange Act Rule 10b-5 ("Employment of manipulative and deceptive devices").

The SEC is seeking an injunction, disgorgement of ill-gotten gains, civil monetary penalties and permanent bans of the charged individuals from acting as directors or officers of a public company.

Separately, a grand jury in the District Court for the Southern District of Alabama returned an Indictment filed by the DOJ charging the executives with wire fraud. The Indictment alleges that the executives provided false and misleading information to company shareholders, the investing company and two banking entities in order to receive approximately $105 million in funding to finance the construction of the ships.