SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16709 \ September 19, 2000
Accounting And Auditing Enforcement Release No. 1304 \ September 19, 2000
SEC v. Ronald R. Charnock, Mark C. Hyer, Walter Wilowatyj And Donald C. Yount, Civil Action No. 00 CV 02239 (D.D.C.)
SEC Settles Fraud Case Against Former Officers of Versatility, Inc.
The Securities and Exchange Commission today announced the filing and settlement of securities fraud charges against Ronald R. Charnock, Mark C. Hyer, Walter Wilowatyj and Donald C. Yount, former officers of Versatility, Inc., formerly a Fairfax, Virginia telemarketing software and services company whose securities were listed on NASDAQ. The Commission's complaint alleges that for fiscal 1997 and the first two quarters of fiscal 1998, Versatility materially overstated its revenues and earnings by improperly recognizing revenue on certain transactions without binding contracts and before reaching agreed-upon performance milestones. The complaint alleges that Versatility overstated revenue by 49% and overstated net income by 125% for 1997, and, for the first and second quarters of 1998, overstated revenue by 52% and 32% and net income by 101% and 47% respectively. On April 28, 1998, Versatility announced the restatement of its revenues and earnings for fiscal 1997 and 1998. Versatility was later acquired by Oracle Corporation.
The complaint alleges that Charnock (the former CEO), Hyer (the former controller), Wilowatyj (the former senior vice president of sales) and Yount (the former CFO), participated in Versatility's material misstatements, and alleges that Charnock, Hyer and Yount provided false or misleading management representation letters to Versatility's auditors. The complaint alleges that the defendants caused Versatility's books to be falsified and that Charnock, Hyer and Yount aided and abetted Versatility's failure to devise and maintain a required system of internal controls.
Charnock, Hyer and Yount consented, without admitting or denying the Commission's allegations, to the entry of a final judgment permanently enjoining each of them from (1) violating the antifraud, books and records and false statements to auditors provisions (Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder); and (2) aiding and abetting violations of the internal accounting controls provision (Section 13(b)(2)(B) of the Exchange Act). Charnock and Yount each consented to pay a $50,000 civil penalty. Hyer consented to pay a $10,000 civil penalty, based in part on his financial condition, and to disgorge $7,200 of losses avoided from his exercise of Versatility stock options. Wilowatyj consented, without admitting or denying the Commission's allegations, to the entry of a final judgment permanently enjoining him from violating the antifraud and books and records provisions (Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder). Wilowatyj consented to pay a $20,000 civil penalty and to disgorge $20,711 of losses avoided from his exercise of Versatility stock options. Yount, a certified public accountant, also consented, without admitting or denying the Commission's allegations, to the subsequent entry of an administrative order pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending him from practicing before the Commission as an accountant, with a right to reapply after three years.