h2>UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
In the Matter of
WILLIAM W. CANFIELD,
|ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission (“Commission”) deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against William W. Canfield (“Respondent” or “Canfield”).1
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent has admitted the Commission’s jurisdiction over him and over the matters set forth herein, Respondent has consented to the entry of this Order Instituting
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”) as set forth below.
On the basis of this Order and Respondent’s Offer, the Commission finds2 that:
1. TALX Corporation (“TALX”), a Missouri corporation with its principal place of business in St. Louis, Missouri, provides automated employment verification services and automated employee self-service applications. TALX became public in 1996 and its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act. The company’s fiscal year ends March 31, and it files reports on Forms 10-K and 10-Q. TALX common stock is quoted on the NASDAQ National Market System.
2. Canfield, age 65, a resident of Kirkwood, Missouri, has been the president and chief executive officer of TALX since 1987. He has been the chairman of the board of directors of TALX since 1988.
3. During the time period relevant to this Order, TALX placed emphasis on meeting its internal and external financial projections, and highlighted its earnings growth to the market. For example, in an October 2000 investor conference call concerning the company’s second quarter earnings, Canfield stated, “We believe that the trend of the last 7 quarters of delivering substantial [earnings per share] increases, and 3 quarters of delivering 50 plus percent quarter over quarter increases, will continue.” Similarly, on January 17, 2001, TALX announced a 50 percent increase in its third quarter earnings per share and a 53 percent increase in its earnings per share for the nine months ended December 31, 2000.
4. During early 2001, TALX began to consider raising additional capital through a secondary stock offering. On April 25, 2001, TALX announced it had met its fourth quarter and year ended March 31, 2001 earnings per share target, and that its earnings per share had grown by more than 50%. After informing the market in its April 26, 2001 investor conference call that TALX expected its 2001 earnings trend to continue through 2002, TALX set the stage for the secondary offering.
5. On June 22, 2001, TALX filed an S-3 registration statement with the Commission. On June 28, 2001, TALX filed its 2001 Form 10-K. TALX filed three amendments to its S-3 registration statement in July and August 2001, two of which incorporated the financial statements contained in TALX's 2001 Form 10-K. TALX’s 2001 financial results were also contained in TALX’s Forms 10-K filed on July 1, 2002 and May 22, 2003, and in TALX’s Forms 8-K filed on July 16, 2001, July 18, 2001, and on June 25, 2002.
6. On July 18, 2001, TALX reported record first quarter 2002 earnings with earnings growth exceeding 50%. Between April 2000 and August 3, 2001, TALX’s stock price had climbed 240%, from approximately $10 to $34. Between April 26, 2001 and August 3, 2001, TALX’s stock price had increased from approximately $26 to $34. On August 3, 2001, TALX filed with the Commission a prospectus and completed its secondary offering of 2.95 million shares of common stock for $32 per share, raising approximately $82 million for the company and $6 million for Canfield.
7. TALX, however, met its 2001 financial targets through accounting misstatements which inflated falsely TALX’s financial performance. The misstatements inflated artificially TALX’s 2001 stock price leading up to TALX’s August 3, 2001 secondary offering.
8. TALX’s misstatements included capitalizing costs relating to a patent infringement claim that should have been expensed. On or about March 13, 2001, TALX entered into a license agreement with a patent holder. TALX’s payment to the patent holder included payment for claimed past use of patented technology, which was a period cost requiring immediate recognition under generally accepted accounting principles (“GAAP”). TALX, however, capitalized the payment. Canfield knew or should have known that the payment should have been expensed. Had TALX properly expensed the payment, TALX would have fallen short of its previously announced financial projections. Instead, TALX overstated pre-tax income by $1.6 million, or 49 percent, for its fiscal year ended March 31, 2001.
9. TALX’s misstatements further included expensing bonuses in the wrong period. On or about April 12, 2001, Canfield and two other TALX executives gave up half of their fiscal year 2001 bonuses, in aggregate totaling $158,000. One month later, on or about May 15, 2001, TALX paid bonuses totaling $158,000 to Canfield and the other executives. GAAP requires that administrative salaries be expensed in the period of the event when the cost occurred. The reinstated bonuses should have been expensed in fiscal 2001, but TALX expensed them in fiscal 2002. Canfield knew or should have known that the bonuses were improperly expensed in fiscal 2002. By expensing the bonuses in the wrong period, TALX overstated its fiscal 2001 pre-tax income by $158,000, or 5 percent.
10. As a result of the conduct described above, TALX made material financial misrepresentations in Forms 10-K and 10-Q for the years ended March 31, 2001 and 2002, and for the three months ended June 30, 2002, and in TALX’s fiscal 2002 registration statement. TALX overstated its fiscal 2001 pre-tax income by $1.8 million, or 54 percent.
11. Section 17(a)(2) of the Securities Act makes it unlawful in the offer or sale of any securities to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading. Section 17(a)(3) of the Securities Act makes it unlawful in the offer or sale of any securities to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. By engaging in the conduct described herein, Canfield caused violations of Sections 17(a)(2) and (3) of the Securities Act.
12. Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission’s rules prescribe. Pursuant to Section 13(a), the Commission promulgated Rules 13a-1 and 13a-13 that require issuers to file annual and quarterly reports, respectively. The reporting requirements necessarily include the requirement that the issuer supply accurate information. In addition, Rule 12b-20 requires that reports contain such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading. As a result of the conduct described herein, Canfield was a cause of TALX’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
13. Section 13(b)(2)(A) of the Exchange Act states that every Section 12 registrant must “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” Rule 13b2-1 provides that no person shall, directly or indirectly falsify or cause to be falsified, any book, record, or account subject to Section 13(b)(2)(A). As a result of the conduct described herein, Canfield committed violations of Rule 13b2-1 of the Exchange Act, and was a cause of TALX’s violations of Section 13(b)(2)(A) of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent’s Offer.
Accordingly, it is hereby ORDERED that Respondent cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Exchange Act Rule 13b2-1, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
IT IS FURTHERED ORDERED that Respondent shall, within ten days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $859,999. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the to the Clerk of the Court, United States District Court for the Eastern District of Missouri; (C) hand-delivered or mailed to the Clerk of the Court, United States District Court for the Eastern District of Missouri, 111 S. 10th Street, St. Louis, Missouri 63102; and (D) submitted under cover letter that identifies that the payment shall be deposited into the Court Registry Investment System (“CRIS”) account established for the action titled Securities and Exchange Commission v. TALX Corporation, a copy of which cover letter and money order or check shall be sent to Donald M. Hoerl, Associate Director, and Ian S. Karpel, Branch Chief, Division of Enforcement, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202-2648.
By the Commission.
Jonathan G. Katz
1 This matter is related to a civil action, Securities and Exchange Commission v. William W. Canfield, in which Canfield has consented to pay a $100,000 penalty.
2 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or entity in this or any other proceeding.
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