SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16310 / September 28, 1999
Accounting & Auditing Enforcement Release No. 1187 / September 28, 1999
SECURITIES AND EXCHANGE COMMISSION v. FASTCOMM COMMUNICATIONS CORPORATION, Civil Action No. 99-1448-A (E.D. Va. September 28, 1999).
SECURITIES AND EXCHANGE COMMISSION v. CHARLES L. DESLAURIER,
Civil Action No. 99-1449-A (E.D. Va. September 28, 1999).
SEC CHARGES ACCOUNTING VIOLATIONS AGAINST NORTHERN VIRGINIA TELECOMMUNICATIONS COMPANY, FASTCOMM COMMUNICATIONS CORPORATION, AND FORMER SENIOR OFFICER
The Securities and Exchange Commission today filed civil injunctive actions against FastComm Communications Corporation, a telecommunications company based in Sterling, Virginia, and Charles L. DesLaurier, formerly FastComm's Vice President of Contracts and Administration. The Complaints, filed in the United States District Court for the Eastern District of Virginia, charged that FastComm, with the knowledge and participation of DesLaurier, engaged in two transactions that led to the fraudulent recognition of revenue in certain of the company's financial statements during 1993 and 1994. These transactions related to purported sales that did not support the recognition of revenue under applicable accounting standards.
According to the Complaints, FastComm recognized $185,000 in revenue on a sale of telecommunications products that were not completely assembled and not fully functional as originally shipped, and that a certain number were packaged and shipped after the close of the fiscal quarter. The Complaint as to DesLaurier alleges that he directed the shipment of incomplete product and ordered the backdating of Company documentation to conceal that certain shipments had been made after the end of the quarter.
The Complaints further allege that FastComm improperly recognized revenue of $579,000 during the quarter ended February 5, 1994, on two sales to a South American customer. This represented approximately one-third of its sales revenue for that period. When finished product was not available for shipment to satisfy these orders, unfinished product was shipped to a freight-forwarder's warehouse to be held until recalled by FastComm. Moreover, this shipment to the warehouse was not completed by midnight on the last day of the quarter, and thus some or all of the unfinished product was packaged and shipped after the close of the fiscal quarter. The Complaint further alleges that these sales were contingent upon a letter of credit from the customer, which was never provided, and upon a further sale of the product by the customer to an end-user. The Complaint as to DesLaurier alleges that DesLaurier ordered the shipment of unfinished product to the warehouse; that he knew of the conditional nature of the sale; and that he was aware of the backdating of Company documentation to conceal that the shipment of product to the warehouse was made after the close of the fiscal quarter. The company subsequently reversed this transaction. In addition, in a non-fraud claim, the Commission alleges that FastComm failed to disclose a related-party transaction between the Company and the brother-in-law of its president that accounted for nearly 20% of the sales revenue for the fiscal quarter ended July 31, 1993.
Simultaneous with the filing of the Complaints, FastComm and DesLaurier each consented, without admitting or denying the allegations in the Complaints, to the entry of final judgments as to each of them. The final judgment as to FastComm enjoins it from future violations of Section 10(b) (the "antifraud" provision), Section 13(a) (the "periodic reporting" provision), Section 13(b)(2)(A) (the "books and records" provisions) and Section 13(b)(2)(B) (the "internal control" provisions) of the Securities Exchange Act of 1934. FastComm, which recently emerged from a reorganization proceeding, was not required to pay a civil penalty. The final judgment as to DesLaurier permanently enjoins him from future violations of Section 10(b) of the Exchange Act and from aiding and abetting violations of Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13, and orders that he pay a civil penalty of $20,000.
In a related matter, on September 28, 1999, the Commission instituted and simultaneously settled public administrative proceedings against two other FastComm officers: Chief Executive Officer Peter C. Madsen and Chief Financial Officer Mark Rafferty. In the Matter of Peter Madsen and Mark Rafferty, Securities Exchange Act of 1934 Release No. 41935 (September 28, 1999). The Commission made findings that Madsen and Rafferty were each a cause of certain of the Company's violations of the Exchange Act's periodic reporting, books and records and internal controls provisions. Madsen and Rafferty each consented, without admitting or denying the Commission's findings, to the issuance of an order directing each of them to cease and desist from causing any future violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). In addition, Madsen and Rafferty each agreed, in a separate civil action in federal district court, to pay $20,000 in civil penalties. See SEC v. Peter Madsen and Mark Rafferty, Civil Action No. 99-1450-A (E.D. Va. September 28, 1999).