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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22156 / November 16, 2011

Accounting and Auditing Enforcement Release No. 3340 / November 16, 2011

Securities and Exchange Commission v. J.T. Battenberg, III and Paul Free, 06-cv-14891-AC-SDP (E.D. Mich.) (filed October 30, 2006)

COURT ENTERS FINAL JUDGMENTS AGAINST DELPHI’S FORMER CHIEF EXECUTIVE OFFICER AND CHIEF ACCOUNTING OFFICER FOLLOWING JURY VERDICT.

The Securities and Exchange Commission today announced that the Honorable Avern Cohn, U.S. District Judge for the Eastern District of Michigan, entered final judgments as to Paul Free, the former Chief Accounting Officer and Controller of Delphi Corporation, and J.T. Battenberg, III, the former Chief Executive Officer of Delphi, and ordered them to pay disgorgement and penalties for federal securities law violations found by a jury. The Court also entered a permanent injunction for fraud and other securities law violations against Free. Delphi is an auto parts manufacturer with headquarters in Troy, Michigan.

On January 13, 2011, a jury returned a verdict in favor of the SEC and against Free and Battenberg for violating the federal securities laws. Specifically, the jury found that Battenberg violated the books and records and misrepresentations to accountants provisions of the federal securities laws for his role in the improper accounting for Delphi’s portrayal of $202 million of Delphi’s $237 million warranty settlement with General Motors Corporation (“GM”) in September 2000 as related to pension and other post-employment benefits. As a result, Delphi filed materially false and misleading financial statements in the company’s third quarter 2000 quarterly report on Form 10-Q and its fiscal year 2000 annual report on Form 10-K. In addition, the jury found Free liable on fraud and other charges brought by the Commission for his role in Delphi’s false and misleading accounting for two financing transactions at year-end 2000 -- one involving nearly Delphi’s entire inventory of precious metals necessary to the manufacture of catalytic converters, and one involving Delphi’s inventory of generator cores and batteries – which Delphi falsely claimed as inventory sales; as well as Delphi’s false and misleading accounting for a $20 million payment that it received from Electronic Data Systems (“EDS”) in December 2001 as a rebate (income) rather than as a loan. The jury further found that Free violated the books and records and misrepresentations to accountants provisions of the federal securities laws for his role in the GM warranty transaction. On March 8, 2011, the Court entered partial judgment on liability in accord with the jury’s findings.

Thereafter, on October 31, 2011, at the conclusion of the remedies phase of the case, and based upon the jury verdicts, the Court entered final judgments as to Free and Battenberg. The Court enjoined Free from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and Section 20(e) of the Exchange Act for aiding and abetting Delphi’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 and 13a-13 promulgated thereunder. The Court further ordered Free to disgorge $38,000 in profits and to pay a penalty of $80,500. In addition, the Court found Battenberg liable for violations of Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 promulgated thereunder. The Court ordered Battenberg to disgorge $198,500 in profits and to pay a penalty of $16,500.

During the trial, the Commission settled with two individual defendants – Catherine Rozanski, Delphi’s former Director of Financial Accounting and Reporting, and Milan Belans, Delphi’s former Director of Capital Planning, Structured Finance and Pension Analysis. Rozanski consented to the entry of an injunction from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and 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 Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and13a-1 thereunder. Rozanski also consented to pay a $40,000 civil money penalty. In settling the Commission’s claims, Rozanski neither admitted nor denied the Commission’s allegations. In addition, separately, without admitting or denying the Commission’s findings, Rozanski consented to the institution of administrative proceedings pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending her from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years, based on the entry of the injunction. The Commission’s Complaint against Rozanski alleged that as a result of her participation in the EDS $20 million payment transaction, described above, Delphi filed materially false and misleading financial statements in the company’s 2001 Form 10-K.

Moreover, during the trial, Belans consented to the entry of an injunction from future violations of Section 17(a) of the Securities Act and 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 Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Belans also consented to pay disgorgement of $17,835, together with prejudgment interest thereon in the amount of $13,865, and a $55,800 civil money penalty. In settling the Commission’s claims, Belans neither admitted nor denied the Commission’s allegations. In addition, separately, without admitting or denying the Commission’s findings, Belans consented to the institution of settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after five years, based on the entry of the injunction. The Commission’s Complaint against Belans alleged that Belans engaged in the GM warranty settlement transaction and the inventory transactions described above, which resulted in Delphi filing materially false and misleading financial statements in the company’s quarterly report on Form 10-Q for third quarter 2000, and on the company’s annual report on Form 10-K for the fiscal year ended December 31, 2000.

The Commission originally filed suit against Delphi and 13 individual defendants on October 30, 2006. Delphi and six individual defendants settled with the Commission at that time. The Commission entered into settlements with two individual defendants and voluntarily dismissed another prior to trial.

Finally, based upon the Court’s permanent injunction of Free, the Commission entered an order instituting public administrative proceedings and imposing remedial sanctions pursuant to Rule 102(e) of the Commission’s Rules of Practice. The Commission temporarily suspended Free from appearing or practicing before the Commission. The suspension may become permanent if Free does not file a petition with the Commission within thirty days.

This concludes the Commission’s federal district court litigation.

Additional materials: Litigation Release Nos. 19891 (October 30, 2006), 20975 (March 27, 2009), 21660 (September 22, 2010).

Securities Exchange Act of 1934 Release Nos. 63356 (November 22, 2010), 63578 (December 20, 2010).

Accounting and Auditing Release Nos. 2500 (October 30, 2006), 2501 (October 30, 2006), 2502 (October 30, 2006), 2503 (October 30, 2006), 2791 (February 26, 2008), 2792 (February 26, 2008), 2955 (March 27, 2009), 3188 (September 22, 2010), 3214 (November 22, 2010), 3220 (December 20, 2010).

 

http://www.sec.gov/litigation/litreleases/2011/lr22156.htm


Modified: 11/16/2011