U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20738 / September 24, 2008
Accounting and Auditing Enforcement Release No. 2887 / September 24, 2008
SEC v. Steven M. Des Champs and Martha W. Vlcek, Civil Action No. 2:08-CV-1279 (D. NV).
The Securities and Exchange Commission ("Commission") today filed a civil injunctive action against two former accounting executives of Las Vegas-based Bally Technologies, Inc., f/k/a Alliance Gaming Corporation ("Bally") for engaging in a fraudulent accounting scheme to artificially inflate the company's reported revenue and present misleading information to investors about the company's earnings.
The Commission's complaint filed in federal district court in the District of Nevada alleges that from the fourth quarter of fiscal year 2003 through the second quarter of fiscal year 2004, Bally's former chief accounting officer and former chief financial officer Steven M. Des Champs and former vice president of finance Martha W. Vlcek fraudulently recognized revenue on bill and hold transactions, made misleading disclosures and omissions regarding revenue recognition, and made materially false statements to the company's outside auditors when they represented the transactions were proper under generally accepted accounting principles. According to the complaint, the improper bill and hold sales led to a 25% overstatement of Bally's reported earnings per share ("EPS") for the fourth quarter of fiscal 2003 and to 33% and 27% overstatements of Bally's reported quarterly EPS numbers in the first and second quarters of 2004, respectively.
The complaint also alleges that in the second and third quarters of 2005, Des Champs fraudulently recognized revenue on transactions where he knew that the company could not reasonably expect that it would be paid and again made materially false statements to the auditors about his knowledge of the improper accounting, among other things. As a result, the Commission alleges that Bally was later required to reverse $6.3 million of the $10.6 million of revenue originally recognized.
The defendants are charged with violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and with aiding and abetting Bally's 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. Additionally, Des Champs is charged with falsely certifying the accuracy of Bally's financial statements in violation of Exchange Act Rule 13a-14. The Commission's complaint seeks permanent injunctions, disgorgement of ill-gotten gains, third tier civil penalties, prejudgment interest, and an officer and director bar against both defendants.