SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16634 / July 24, 2000
Accounting and Auditing Enforcement Release No. 1288 / July 24, 2000
SECURITIES AND EXCHANGE COMMISSION v. TIMOTHY J. GAFFNEY, Case No. 1:00CV01725 (RMU) (U.S.D.C., D.D.C.)
SEC ANNOUNCES SETTLED ENFORCEMENT PROCEEDINGS AGAINST GUILFORD MILLS, INC. AND TIMOTHY J. GAFFNEY
The Securities and Exchange Commission today announced settled enforcement proceedings against Guilford Mills, Inc., a textile company based in Greensboro, North Carolina, and Timothy J. Gaffney, the former controller of Guilford's Hofmann Laces subsidiary in Cobleskill, New York. The Commission filed a securities fraud complaint against Gaffney in the United States District Court for the District of Columbia and issued an administrative cease-and-desist order against Guilford.
In its complaint against Gaffney, the Commission alleged that Gaffney made a series of false accounting entries in 1997 and 1998 while employed as controller of Guilford's Hofmann Laces subsidiary, which Guilford had acquired in January 1996. According to the complaint, Gaffney's false entries materially understated accounts payable and materially overstated earnings for Hofmann Laces, which in turn caused Guilford's consolidated operating results to be materially overstated in the financial statements included in Guilford's quarterly reports on Form 10-Q filed with the Commission for the quarters ended December 28, 1997, March 29, 1998, and June 28, 1998. Without admitting or denying the allegations of the Commission's complaint, Gaffney consented to entry of a judgment that enjoins him from violating the antifraud, internal accounting controls, and record-keeping provisions of the Securities Exchange Act of 1934 (Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 thereunder), and orders him to pay a $25,000 civil penalty.
In the related administrative proceeding against Guilford, the Commission found that Guilford failed to implement and maintain adequate internal accounting controls following its acquisition of Hofmann Laces, which allowed Gaffney's false entries to go undetected and resulted in books and records that did not accurately and fairly reflect Guilford's transactions and asset dispositions. Based on those findings, the Commission issued an order finding that Guilford violated the periodic reporting, internal accounting controls, and record-keeping provisions of the Exchange Act (Sections 13(a) and 13(b)(2) (A) and (B) and Rule 13a-13 thereunder) and requiring Guilford to cease and desist from committing or causing such violations. Guilford consented to the issuance of the Commission's order without admitting or denying the matters set forth therein. (See Exchange Act Rel. No. 43068 /AAER No. 1287.