U.S. Securities and Exchange Commission
Litigation Release No. 21962 / May 11, 2011
Accounting and Auditing Enforcement
Release No. 3279 / May 11, 2011
SECURITIES AND EXCHANGE COMMISSION v. MICHAEL BAKER CORPORATION, JOHN SCULLIN and DENNIS HIGGINS, Civil Action No. 4:11-cv-1791, United States District Court for the Southern District of Texas (Houston) (Filed May 11, 2011)
COMMISSION CHARGES FORMER MICHAEL BAKER EMPLOYEE WITH FRAUD FOR ARTIFICALLY INFLATING COMPANY'S INCOME, AND ANOTHER FORMER EMPLOYEE WITH INSIDER TRADING
The Securities and Exchange Commission today charged Michael Baker Corporation, a company headquartered in Moon Township, Pennsylvania, and John Scullin, a former Manager of Project Accounting in the company's former energy business segment, with falsifying the company's accounting records which inflated the revenue and income reported to shareholders. The Commission's complaint alleges that the company's material financial misstatements were primarily caused by the fraudulent conduct of Scullin who prepared and caused false manual journal entries to be entered into the company's general ledger. Scullin's misconduct occurred against a backdrop of Michael Baker's failure to maintain adequate internal controls over its former energy business segment's books, records and accounts.
As alleged in the Commission's complaint, beginning in the fourth quarter of 2006 and continuing through the first three quarters of 2007, Scullin made unsupportable manual journal entries that resulted in the material overstatement of the company's pre-tax income by 13% for the fourth quarter of 2006, and by 100%, 33% and 28% for the first three quarters of 2007.
The Commission also charged Dennis Higgins, a former operations manager in Michael Baker's energy segment, with insider trading. The Commission's complaint alleges that Higgins sold all of his Michael Baker stock in his 401(k) account and terminated his ongoing 401(k) investments in the company upon learning of the material misstatements, and prior to the company's February 22, 2008 public announcement that it would restate its prior financial results.
Without admitting or denying the allegations in the complaint, Michael Baker consented to a permanent injunction against future violations of the reporting, books and records and internal controls provisions of the federal securities laws, including Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; Scullin consented to the entry of a final judgment permanently enjoining him against violations of the antifraud, books and records and internal controls provisions of the federal securities laws, including 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 the reporting, books and records and internal controls provisions of the federal securities laws, including Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and ordering him to pay a $35,000 civil penalty.
Additionally, without admitting or denying the allegations in the complaint, Dennis Higgins consented to a permanent injunction against violations of the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and ordering disgorgement of $16,929.75 and prejudgment interest of $2,035.17, representing his losses avoided on account of his insider trading, and ordering him to pay a civil penalty of $16,929.75.
In a related action, the Commission today also instituted a settled administrative proceeding against Michael Higgins, Scullin's former supervisor and the former Chief Financial Officer of Michael Baker's energy segment. The Commission's findings include that: (1) as the former Chief Financial Officer of Michael Baker Corporation's energy business segment, Michael Higgins regularly approved month-end manual journal entries that had been posted by Scullin, but did not review the supporting documentation for the manual journal entries as part of his approval process; and (2) certain of these manual journal entries were not in accordance with GAAP, resulting in the Company's material overstatements of revenue and net income in its financial statements contained in the Form 10-K for its fiscal year 2006 (filed March 16, 2007) and in the Forms 10-Q for the first three quarters of its fiscal year 2007 (filed May 8, 2007, August 7, 2007, and November 5, 2007, respectively). As a result, Michael Higgins caused Michael Baker's violations of the reporting, books and records and internal controls provisions of the federal securities laws. Michael Higgins, without admitting or denying any of the findings in the Order except as to the jurisdiction of the Commission over it, which he admitted, consented to the entry of the Order which orders him to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Exchange Act Rules 12b-20, 13a-1, and 13a-13 thereunder. See Securities Exchange Act of 1934 Rel. No. 64471, Accounting and Auditing Enforcement Rel. No. 3278, Administrative Proceeding File No. 3-14379.