SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16962 \ April 16, 2001
Accounting and Auditing Enforcement Release No. 1381 \ April 16, 2001
SECURITIES AND EXCHANGE COMMISSION V. JOHN N. BRINCAT, Sr. and BRADLEY VALLEM, U.S. District Court for the Northern District of Illinois, Civil Action No. 01 - C - 2670 (N.D. Ill. April 16, 2001)
On April 16, 2001, the Commission filed financial fraud charges in the United States District Court for the Northern District of Illinois against John N. Brincat, Sr. (Brincat), the former CEO of Mercury Finance Co. (Mercury), and Bradley Vallem (Vallem), Mercury's former Treasurer. The Complaint seeks a permanent injunction and civil penalties against Brincat and Vallem. The Complaint also seeks an order requiring Brincat to disgorge his ill-gotten gains and barring him from serving as an officer or director of a public company.
In its Complaint, the Commission alleges that, in 1996, Brincat instructed Mercury employees to refrain from charging off approximately $26 million in loan losses incurred when automobiles were repossessed and subsequently sold. In addition, the Complaint alleges that, again in 1996, Brincat instructed Mercury employees to refrain from charging off more than $24 million in loan losses that should have been charged off because the loans were more than 150 days past due. As a result of this improper reporting of loan losses, Mercury filed with the Commission, and disseminated to the public, fraudulent quarterly financial statements in May, August and November of 1996 and overstated its annual income in January 1997. The Commission also alleges that in early 1996, Vallem learned that Mercury employees falsified a bank statement to cover-up a sham transaction that affected Mercury's reported commercial paper balance. Despite his knowledge of this and other wrongdoing, Vallem signed the fraudulent quarterly filings. Finally, the Complaint alleges that Brincat committed, and aided and abetted, violations of various books and records provisions.
The Complaint seeks entry of a Final Judgment enjoining both Brincat and Vallem from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and enjoining Brincat from future violations, and aiding and abetting violations, of Sections 13(b)(2)(A) and 13(b)(2)(B(ii) of the Securities Act and Section 13(b)(5) of the Exchange Act. The Complaint also seeks to require both defendants to pay civil penalties pursuant to Section 21A of the Exchange Act. Finally, the Complaint seeks disgorgement of ill-gotten gains against Brincat and an order barring him from acting as an officer or director of a public company.