U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20473 / March 3, 2008
Accounting and Auditing Enforcement Release No. 2793 / March 3, 2008
Securities and Exchange Commission v. Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan, Civil Action No. 06-CV-10012-JGD (D. Mass.)
Jury Finds Former Applix, Inc. CFO Violated Securities Laws and Finds Former CEO Not Liable; Consent Judgment Entered Against Third Former Executive
The Securities and Exchange Commission announced today that on February 15, 2008 a jury found Walter T. Hilger, former Chief Financial Officer of Applix, Inc, a Westborough, Massachusetts Internet software company, liable for fraudulent conduct, including the falsification of books and records, in a civil injunctive action involving improper revenue recognition by Applix. The jury found former Applix CEO Alan C. Goldsworthy not liable for any securities law violations. The verdict followed a four week trial in Boston, Massachusetts before the Honorable Judith Dein, United States Magistrate for the United States District Court for the District of Massachusetts.
The Commission's complaint, filed on January 4, 2006, alleged that Goldsworthy, Hilger and former Applix Director of World-Wide Operations Mark E. Sullivan participated in two fraudulent revenue recognition schemes, causing Applix to report inflated revenue and understated net loss figures for the year ended December 31, 2001 and for the quarter ended June 30, 2002.
The jury found that Hilger violated section 17(a)(3) of the Securities Act of 1933 ("Securities Act"); that he falsified Applix's books and records in violation of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); and that he knowingly aided and abetted Applix's filing of a false form 8-K in violation of Section 13(a) of the Exchange Act. The jury found that defendant Hilger did not violate Sections 17(a)(1) and (2) of the Securities Act, and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-2. The Court will determine the appropriate remedies against Hilger at a later date.
The jury found that Goldsworthy did not violate Section 17(a) of the Securities Act and and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2.
The Court had previously entered a final judgment by consent against Sullivan on January 9, 2008. The final judgment enjoins Sullivan from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, and orders Sullivan to pay a $25,000 civil money penalty. Sullivan, a resident of Bridgewater, Massachusetts, consented to the judgment without admitting or denying the allegations in the Commission's complaint.
The Commission also issued an order instituting a settled administrative proceeding against Sullivan pursuant to Rule 102(e) of the Commission's Rules of Practice, based on the entry of the injunction against him. Simultaneously with the institution of the administrative proceeding and without admitting or denying the findings contained in the order, except as to jurisdiction and as to entry of the injunction, Sullivan consented to the issuance of the Commission Order, which suspends him from appearing or practicing before the Commission as an accountant for three years. Sullivan was an inactive CPA at the time of his conduct.
Earlier, in a related administrative proceeding, the Commission issued a settled Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing Cease-and-Desist Order Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act against Applix, Inc. The Order found that Applix materially overstated net income in the two periodic reports and a registration statement filed with the Commission. Applix, while neither admitting nor denying the Order's findings, consented to the entry of the Order finding that Applix violated Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11,13a-13 and 13b2-1 thereunder. The company also agreed to undertakings including the hiring of an independent Financial Policies Consultant to review the company's internal controls, board oversight and business practices.
For further information see Litigation Release No. 19521 (January 4, 2006); Securities Act Release No. 8651 and Exchange Act Release No. 53049 (January 4, 2006); and Exchange Act Release No. 57165 and Accounting and Auditing Enforcement Release No. 2768 (January 17, 2008).