Securities and Exchange Commission
Litigation Release No. 16301 / September 28, 1999
Accounting and Auditing Enforcement
Securities And Exchange Commission v. Jose Carlos Villares, Jose E. Rivera and Guillermo Quinones, No. 99 Civ. 2565 (TPJ) (D.D.C. filed September 22, 1999)
The Securities and Exchange Commission ("Commission") today charged three executives of Pepsi-Cola Puerto Rico Bottling Company ("Pepsi P.R.") with accounting fraud. The three are charged with engaging in a scheme to fraudulently overstate the financial results of Pepsi P.R. that were incorporated into its Forms 10-Q for the first two quarters following the company's September 19, 1995 initial public offering.
The Complaint, which was filed in the United States District Court for the District of Columbia, alleges that Pepsi P.R.'s General Manager, Jose Carlos Villares ("Villares"), directed the company's Director of Finance, Jose E. Rivera, CPA ("Rivera"), and Controller, Guillermo Quinones, CPA ("Quinones"), to inflate the company's financial results by understating sales discounts and allowances and operating expenses, in violation of the antifraud, reporting and books and records provisions of the federal securities laws. The Complaint also alleges that Villares orchestrated, and Quinones agreed to participate in, an unsuccessful revenue recognition scheme, in violation of the books and records provisions.
The Complaint alleges that defendants' fraudulent scheme enabled Pepsi P.R. to report a profit during the first quarter of fiscal year 1996, even though the company had experienced a loss, and to report a smaller than actual loss during the second quarter of fiscal year 1996. Previously, the Commission charged Pepsi P.R. in a settled cease and desist proceeding arising out of the same conduct that formed the basis for today's action. See In the Matter of Pepsi-Cola Puerto Rico Bottling Company, Secs. Exch. Act Rel. No. 39984 (May 12, 1998).
All three defendants have agreed to settle the charges without admitting or denying the allegations in the Complaint. Villares consented to the entry of a final judgment permanently enjoining him from future violations of Section 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 13b2-2 thereunder. The Commission agreed not to seek imposition of civil monetary penalties against Villares based upon his demonstrated inability to pay.
Rivera consented to the entry of a final judgment permanently enjoining him from future violations of Section 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder, and imposing a $10,000 civil penalty. Rivera also offered to settle related administrative proceedings by consenting to the issuance of an order denying him the privilege of appearing or practicing before the Commission as a accountant, with the right to apply for reinstatement after five (5) years, pursuant to Rule 102(e) of the Commission's Rules of Practice.
Quinones consented to the entry of a final judgment permanently enjoining him from future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-13 and 13b2-1 thereunder.