U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20703 / September 5, 2008
Securities and Exchange Commission v. Retail Pro, Inc. (fka Island Pacific, Inc.), Barry M. Schecter, Ran H. Furman, and Harvey Braun, Civil Action No. CV 08-1620 WQH (RBB) (S.D. Cal.)
SEC Sues Island Pacific and Former CEOs and CFO for Accounting Fraud Scheme
Today, the Securities and Exchange Commission filed securities fraud charges against Retail Pro, Inc. (formerly known as Island Pacific, Inc.), and two former CEOs and a former CFO for their roles in an accounting fraud scheme designed to falsely inflate Island Pacific's revenues. The Commission's lawsuit, filed in federal district court in San Diego, Calif., names Retail Pro, Inc., a La Jolla, Calif. software company, Barry M. Schechter, age 54, of La Jolla, Calif., Ran H. Furman, age 39, of San Diego, Calif., and Harvey Braun, age 69, of Livingston, New Jersey. Island Pacific, Schechter, and Braun have agreed to settle the charges.
The Commission's complaint alleges that Schechter, the former CEO, Furman, the former CFO, and Braun, another former CEO, caused Island Pacific to improperly record and report $3.9 million in revenue from a barter transaction. As alleged in the complaint, the barter transaction had little economic purpose or business substance aside from manipulating Island Pacific's financial statements. The complaint further alleges that as a result of improperly recognizing and reporting the $3.9 million as revenue, Island Pacific overstated its revenues by 140% for the second quarter of 2004, 29% for the nine months ending the third quarter of 2004, and 22% for the 2004 fiscal year. In addition, Island Pacific reported a small profit instead of a massive loss for the second quarter of 2004.
The complaint also alleges that the defendants failed to disclose the barter nature of the transaction and actively concealed their fraud from Island Pacific's outside auditors and the public by creating forged and backdated documents in an attempt to show that recognizing revenue from the transaction was proper. In addition, the complaint alleges that Schechter sold 637,750 shares of Island Pacific stock for more than $1.5 million during the fraudulent scheme.
To settle the Commission's charges, Island Pacific, without admitting or denying the allegations, consented to the entry of a final judgment permanently enjoining it from future violations of the antifraud, reporting, record-keeping, and internal controls provisions of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.
To settle the Commission's charges, Schechter, without admitting or denying the allegations, consented to the entry of a final judgment permanently enjoining him from future violations of the antifraud, record-keeping, internal controls, and lying to the accountants provisions of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting Island Pacific's reporting violations; ordering him to pay disgorgement of $488,410 in ill-gotten gains from his stock sales during the fraud, prejudgment interest of $27,437, and a civil penalty of $120,000; and barring him from serving as an officer or director of a public company for a period of ten years. Schechter, who was Chartered Accountant in South Africa, also consented, without admitting or denying the Commission's findings, to entry of an administrative order that makes findings and suspends him from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.
To settle the Commission's charges, Braun, without admitting or denying the allegations, consented to the entry of a final judgment permanently enjoining him from future violations of the antifraud, record-keeping, internal controls, lying to the accountants, and false certification provisions of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder and aiding and abetting Island Pacific's reporting violations (except its violation of Rule 13a-1); ordering him to pay a civil penalty of $75,000; and barring him from serving as an officer or director of a public company for a period of five years.