U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20650 / July 22, 2008
Securities and Exchange Commission v. Scott Hirth et al., 08 cv 13139 (E.D. Mich, filed July 22, 2008)
SEC Charges Scott Hirth and ProQuest Company in Connection With Accounting Fraud Scheme
The Securities and Exchange Commission today charged Scott Hirth of Carleton, Michigan and ProQuest Company, headquartered in Ann Arbor Michigan, in connection with a financial fraud scheme that occurred from 2001 through 2005. Hirth was the former Vice-President of Finance and Chief Financial Officer for ProQuest's Information and Learning Division.
The Commission's complaint, filed in federal court in Detroit, alleged that at the end of monthly and quarterly reporting periods, from at least 2001 through 2005, Hirth made fraudulent manual journal entries in order to favorably alter ProQuest's financial results. These manual journal entries were adjustments to the balances in certain ProQuest accounts and were designed to increase revenue and decrease expenses at ProQuest. Through these false accounting entries, Hirth materially inflated ProQuest's reported Earnings Before Interest and Taxes for 2001 though 2004 and the first three quarters of 2005. The Commission further alleged that Hirth created false documentation to purportedly support the balances in the manipulated accounts and used "hidden rows" and "white font" functions in spreadsheets to conceal his false accounting entries. After ProQuest disclosed the accounting scheme in its public filings, the Commission alleged that ProQuest lost over $437 million in market capitalization. ProQuest's stock price dropped from $29.41 to $12.31 per share between February and April 2006. Finally, the Commission alleged that ProQuest failed to devise and maintain a system of internal accounting controls that could have prevented Hirth's scheme and failed to properly apply other basic accounting principles during this period.
ProQuest and Hirth consented to the settlement of this action without admitting or denying the allegations of the Commission's complaint. Under the settlement, Hirth is permanently enjoined from committing future violations of the federal securities laws, and he will pay disgorgement of $233,676.00, prejudgment interest of $54,474.25 and a civil penalty of $130,000, and consent to be permanently barred from serving as an officer and director of a public company and from practicing as an accountant before the Commission. ProQuest is permanently enjoined from future violations of the internal controls, books and records, and reporting provisions of the federal securities laws.