SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16710 / September 19, 2000
Accounting and Auditing Release No. 1305 / September 19, 2000
Securities and Exchange Commission v. Robert G. Herndon, Civil Action No. 4-00-CV-1564-A (N.D. Tex.) (Sept. 19, 2000)
SEC Charges Robert G. Herndon, Former CFO of Pier 1, With Fraudulently Concealing $20 Million Loss in 1995
Pier 1 Consents to Cease and Desist Order for
Related Financial Disclosure Violations
The Securities and Exchange Commission today filed two settled enforcement actions involving Pier 1 Imports, Inc., an importer and retailer of home furnishings based in Fort Worth, Texas, and Robert G. Herndon, Pier 1's former Chief Financial Officer. Both actions stem from Pier 1's relationship with money manager S. Jay Goldinger of Beverly Hills.
The first of today's actions, filed in federal district court in Texas, charges Herndon with concealing a $20 million loss in Pier 1's investment funds in 1995 from the company's senior management and its outside auditors, and with circumventing and failing to implement internal controls to properly account for the investments. Herndon's conduct also caused Pier 1 to violate the books and records and internal accounting control provisions of the securities laws. Herndon has agreed to settle the Commission's charges.
The second action is an administrative proceeding against Pier 1 in which Pier 1 has consented to cease and desist from violating the reporting and record-keeping provisions of the securities laws.
These charges stem from the Commission's investigation into a fraud by S. Jay Goldinger, once a well-known Beverly Hills-based money manager, upon his clients, which included Pier 1 and another publicly-traded company, Pairgain Technologies, Inc. In November 1999 the Commission brought cases against Goldinger, Pairgain's CEO and CFO, and Pairgain itself. SEC v. Goldinger, Civil Action No. CV 99-11539-LGB (C.D. Cal. Nov. 8, 1999); SEC v. Strauch, Civil Action No. CV 99-1384-GLT (C.D. Cal. Nov. 8, 1999); In the Matter of Pairgain Technologies, Inc., Securities Exchange Act Release No. 42114 (Nov. 8, 1999). Later, the Commission permanently barred Goldinger from associating with any securities broker or dealer. In the Matter of Goldinger, Securities Exchange Act Release No. 42358 (Jan. 27, 2000).
The complaint filed today against Herndon alleges the following: from at least 1986 through most of 1995, Goldinger engaged in fraudulent trading that eventually left his clients with losses totaling $100 million. One of his clients was Pier 1, which lost nearly $20 million. As Pier 1's CFO, Herndon fraudulently concealed Pier 1's $20 million loss and various other facts about the company's investments with Goldinger from both Pier 1's senior management and its outside auditors. Herndon's fraudulent conduct caused material misrepresentations and omissions in reports filed by Pier 1 with the Commission.
Without admitting or denying the complaint's allegations, Herndon agreed to settle the charges against him by consenting to a final judgment. The final judgment will enjoin Herndon from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder; enjoin him from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; prohibit him from serving as an officer or director of a public company; and order him to pay $75,000 as a civil money penalty.
Herndon has also agreed to settle administrative proceedings under Rule 102(e) of the Commission's Rules of Practice, to be instituted after entry of the injunction, which will deny him the privilege of appearing or practicing before the Commission as an accountant.
In the related administrative proceeding filed today, Pier 1, without admitting or denying the Commission's findings, consented to an order finding that the company violated the periodic reporting, books and records, and internal control provisions of the Exchange Act in connection with the losses in the Goldinger investments. The order directed Pier 1 to cease and desist from committing or causing any violations or future violations of the following provisions: Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. In the Matter of Pier 1 Imports, Inc., Exchange Act Release No. 34-43301, September 19, 2000.