U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20548 / May 1, 2008
Accounting and Auditing Enforcement Release No. 2820 / May 1, 2008
Securities and Exchange Commission v. Hong Liang Lu and Michael J. Sophie, Case No. C-08-2262 PJH (N.D. Cal. filed May 1, 2008)
SEC Fines Bay Area Telecom Company Executives For False Financial Filings
The Securities and Exchange Commission today filed a settled district court action against Hong Liang Lu, CEO of Alameda, Calif.-based telecommunications company UTStarcom, Inc., and former UTStarcom CFO Michael J. Sophie in connection with the company's false financial reports and recurring internal control deficiencies. Without admitting or denying the Commission's allegations, Lu and Sophie agreed to pay civil penalties of $100,000 and $75,000, respectively.
According to the complaint, UTStarcom publicly reported over $400 million in sales between 2000 and 2005 that were subject to undisclosed side agreements or contract modifications rendering revenue recognition improper under applicable accounting principles. The Commission further alleges that UTStarcom failed to disclose and properly account for transactions between the company and an entity controlled by an executive of UTStarcom's China subsidiary, and that the company failed to properly record compensation expenses for employee stock options. According to the Commission, Lu and Sophie violated Rule 13a-14 of the Securities Exchange Act of 1934 ("Exchange Act") by falsely certifying that the company's financial statements and books and records were accurate.
In a related administrative order issued today, the Commission found that, by its conduct, UTStarcom violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Order further found that Lu and Sophie caused the company's violations and violated Exchange Act Rule 13a-14. Without admitting or denying the Commission's findings, UTStarcom agreed to cease and desist from violating the corporate reporting, books and records and internal controls provisions of the federal securities laws, and Lu and Sophie agreed to cease and desist from causing such violations and violating the certification provisions of the federal securities laws.