U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16730 / September 27, 2000
Accounting and Auditing Enforcement Release No. 1325 / September 27, 2000
SEC v. Maurice B. Newman and Richard A. Gerhart, Civil Action No. SACV-00948GLT (Eex)(C.D. Cal.).
On September 27, 2000, the Securities and Exchange Commission filed an action alleging financial statement fraud against the former Chief Executive Officer and the former Chief Financial Officer of Sirena Apparel Group, Inc. ("Sirena"), a women's swimwear manufacturer located in Los Angeles County, California. The complaint alleges that, in order to meet revenue and earnings projections, Maurice B. Newman, former CEO, and Richard A. Gerhart, former CFO, caused Sirena to report false financial information in an earnings press release and a quarterly report for the third quarter ended March 31, 1999.
Also on September 27, 2000, the United States Attorney for the Central District of California announced indictments against Newman and Gerhart for conduct similar to that alleged in the Commission's complaint.
The Commission's action, filed in federal court in Los Angeles, alleges that Newman and Gerhart materially overstated Sirena's revenue by $3.6 million (or 13%) and earnings by $1.3 million (or 30%). As part of their fraudulent scheme, the complaint alleges that Newman and Gerhart engaged in the following conduct:
The Commission's complaint alleges that Newman and Gerhart violated the antifraud provision (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder), the books and records provision (Rule 13b2-1 of the Exchange Act), knowing circumvention of internal controls provision (Section 13(b)(5) of the Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 of the Exchange Act). Additionally, the complaint alleges that Newman and Gerhart aided and abetted Sirena's violations of the reporting provision (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder) and record-keeping provision (Section 13(b)(2)(A) of the Exchange Act).
The Commission's complaint seeks permanent injunctions and civil penalties against the defendants. Additionally, as to Gerhart, the complaint seeks an order barring Gerhart from serving as an officer or director of a public company.
Simultaneous with the filing of the Commission's complaint, Newman offered to settle the action by consenting to a permanent injunction, without admitting or denying the allegations in the complaint, for the violations outlined above. Newman also agreed to pay a civil penalty in the amount of $30,000.
The defendants named in the Commission's complaint are: