U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20204 / July 24, 2007
Accounting and Auditing Enforcement
Release No. 2650 / July 24, 2007
SEC v. John C. Charters,, (United States District Court for the District of Colorado, Civil Action No. 07-CV-01550)
SEC v. Richard E. Fresia, (United States District Court for the District of Colorado, Civil Action No. 07-CV-01549)
SEC Charges Two Former Officers of Expanets, Inc., a Former Subsidiary of Northwestern Corporation, With Financial and Disclosure Fraud
The Securities and Exchange Commission yesterday filed actions against two former officers of Expanets, Inc. ("Expanets"), a former Colorado-based telecommunications subsidiary of NorthWestern Corporation ("NorthWestern"). The Commission's complaints, each filed in the United States District Court for the District of Colorado, allege that John C. Charters, Expanets' former chief executive officer, and Richard E. Fresia, Expanets' former chief financial officer, overstated the performance of Expanets in 2002 during the same period that NorthWestern completed securities offerings totaling more than $800 million. The Commission's complaints further allege that, after restating its financial results for the first three quarters of 2002, and disclosing Expanets' true financial position and results of operations, NorthWestern declared bankruptcy in 2003.
The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, Charters and Fresia were responsible for overstating the performance of and concealing problems at Expanets. The Commission alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the implementation of Expanets' new computer system, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002. The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments.
The Commission's complaints charge Charters and Fresia with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaints also charge each defendant with violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and with aiding and abetting NorthWestern's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. The Commission seeks permanent injunctions and civil penalties against each defendant, and also seeks disgorgement and an officer-and-director bar against Fresia.
Charters, without admitting or denying the allegations in the Commission's complaint against him, consented to the entry of a final judgment permanently enjoining him from violating or aiding and abetting violations of the provisions he allegedly violated, and also consented to pay $50,000 in civil penalties.
For additional information on related Commission actions, see Sec. Exch. Act Rel. No. 34-55416 (March 7, 2007) and Lit. Rel. No. 20091 (April 25, 2007).
See also Complaint in this matter: Fresia