SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16308 / September 28, 1999
ACCOUNTING AND AUDITING ENFORCEMENT
SECURITIES AND EXCHANGE COMMISSION v. DAVID E. STEVENSON AND MARK A. STEVENSON, Civil Action No. 99-CV-1470 DWF/AJB (D. Minn.)
IN THE MATTER OF PAUL THOMAS FINK, C.P.A,
SEC FILES FRAUD CHARGES AGAINST
On September 27, 1999, the Securities and Exchange Commission filed a complaint in the United States District Court for the District of Minnesota against David E. Stevenson, the founder and former president, CEO and chairman of the board of directors of Photran Corp. Before it filed for Chapter 7 bankruptcy protection on May 3, 1999, Photran was headquartered in Lakeville, Minnesota and manufactured high-performance, film-coated glass. The Commission alleges that David Stevenson violated the antifraud, books and records, and internal accounting control provisions of the federal securities laws. The complaint also alleges that David Stevenson's brother, Mark Stevenson, aided and abetted David Stevenson's violations of the antifraud provisions.
The Commission alleges that, beginning in December 1995, David Stevenson devised a fraudulent scheme to overstate Photran's revenues and earnings by recording fictitious sales and prematurely recognizing revenue. This scheme allowed Photran to report a profit for the first time in its existence and just prior to its initial public offering. Specifically, the complaint alleges that in December 1995, David and Mark Stevenson used Photran's own funds as the purported payment for a fictitious glass sale. Using a network of sham companies created by his brother, David Stevenson caused over a million dollars to be wired from Photran accounts purportedly to purchase equipment. In reality, only $18,000 was spent to purchase a used piece of equipment while $951,000 was wired back from the sham company accounts to Photran as payment for glass that was never sold. According to the complaint, Mark Stevenson also converted over $55,000 of Photran's funds for his personal benefit.
The complaint further alleges that David Stevenson fabricated invoices and shipping documents to support additional fictitious sales during 1996. He also directed Photran employees to record unshipped and consigned glass orders as revenue which were recorded in Photran's books and records and incorporated into the financial statements filed with the Commission. In addition, David Stevenson took steps to conceal these fraudulent transactions from Photran's auditors by providing falsified documents to them during the company's initial public offering and its 1996 audit. According to the complaint, this conduct caused Photran to report a profit in its initial registration statement and in subsequent quarters when, in fact, it suffered significant losses. David Stevenson signed Photran's registration statement and the 1996 second and third quarter reports filed with the Commission when he knew or was reckless in not knowing that they contained false and misleading information.
David Stevenson settled the Commission's lawsuit, without admitting or denying the allegations, and agreed to an injunction prohibiting him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2. David Stevenson also agreed to an order prohibiting him from serving as an officer and director of any public company for a period of three years and to pay a $25,000 civil money penalty. In addition, David Stevenson agreed to settle an anticipated administrative proceeding against him, based on the entry of the injunction, which would deny him the privilege of appearing or practicing as an accountant before the Commission pursuant to Rule 102(e) of the Commission's Rule of Practice. Mark Stevenson also settled the Commission's charges, agreeing to a judgment which permanently enjoins him from violating or aiding or abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, but does not order him to pay disgorgement or a civil penalty based upon his demonstrated inability to pay.
On September 28, 1999, the Commission also instituted public administrative proceedings against Photran's former CFO turned CEO, Paul T. Fink, to determine whether he violated the antifraud and books and records provisions of the federal securities laws. In its Order Instituting Proceedings against Fink, the Division of Enforcement (the "Division") and the Office of Chief Accountant ("OCA") allege that Fink signed Photran's registration statement and 1996 second and third quarter reports when he knew or was reckless in not knowing that they materially overstated revenues and earnings. The Order also alleges that Fink repeatedly ignored obvious red flags and recurring conduct that demonstrated the lack of any internal accounting controls. In addition, the Order also alleges that on at least one occasion, Fink personally participated in backdating documents to support premature revenue recognition. As a result of this conduct, the Division and OCA allege that Fink violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.