U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22589 / January 11, 2013
Litigation Release No. AAER-3439 / January 11, 2013
Securities and Exchange Commission v. Volt Information Sciences, Inc. and Debra L. Hobbs, Civil Action No. 13-CV-237 (S.D.N.Y.) and 13-CV-236 (S.D.N.Y.)
Securities and Exchange Commission v. Jack J. Egan, Jr., Civil Action No. 13-CV-236 (S.D.N.Y.) (January 10, 2013)
SEC Charges Volt Information Sciences, Inc. and Two Former Officers with Securities Fraud
The Securities and Exchange Commission yesterday filed civil injunctive complaints in the U.S. District Court for the Southern District of New York in connection with improper accounting at Volt Information Sciences, Inc. ("Volt" or the "Company"), a company located in New York, New York.
In its complaint against Jack J. Egan, Jr. Volt’s former Chief Financial Officer, the Commission alleges that Egan participated in a scheme to materially overstate revenue. For Volt’s fourth quarter and fiscal year ended October 28, 2007, Egan signed and filed financial statements reporting $7.55 million of revenue that had not been earned and was not recognizable under U.S. Generally Accepted Accounting Principles. The $7.55 million of improper revenue caused Volt’s net income for its fourth quarter and fiscal year ended October 28, 2007, to be materially overstated. The complaint further alleges that the scheme relied on fabricated paperwork purporting to be a contract selling software to a customer. Egan knew that any sale of the software was impossible because Volt intended to lease the same software to the same customer the following year. Nevertheless, Egan authorized that the $7.55 million in improper revenue be included in the Company’s consolidated income statement for 2007, which were included in Volt’s: (1) 2007 Form 10-K filed with the Commission on January 11, 2008, as amended by Form 10-K/A filed with the Commission on February 25, 2008; and (2) earnings release on Form 8-K furnished to the Commission on December 20, 2007. Egan signed the fraudulent 2007 Form 10-K and subsequent SEC filings that included the same overstatement of revenue. In addition, the complaint alleges that Egan mislead Volt’s external auditors and he signed one or more certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading.
The Commission’s complaint charges Egan with violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”); Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”); and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 13a-14. The complaint further charges Egan with aiding and abetting violations by the Company. The Commission seeks that Egan be permanently enjoined, be ordered to pay a civil money penalty, and be prohibited from acting as an officer or director.
In addition to the complaint against Egan, the Commission filed a settled civil action against Volt and Debra L. Hobbs (“Hobbs”), the former chief financial officer of the Volt subsidiary where the fraud originated. Without admitting or denying the complaint's allegations, Volt agreed to be enjoined from violating Section 17(a) of the Securities Act , and Sections 10(b),13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-11. The Company cooperated during the Commission’s investigation and has undertaken significant remediation efforts.
Without admitting or denying the complaint’s allegations, Hobbs agreed to be enjoined from violating Exchange Act Section 10(b) and Exchange Act Rule 10b-5, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-11. The judgment further provides that the Court later will determine issues relating to civil money penalty and other remedies. Hobbs has agreed to cooperate with the SEC in connection with this action.
The Commission's settlements with Volt and Hobbs are subject to the approval of the U.S. District Court for the Southern District of New York.