Litigation Release No. 17394 / March 5, 2002
Accounting and Auditing Enforcement Release No. 1512
SEC v. Kenneth W. Haver, U.S. District Court for the Northern District of Ohio, Akron Division, Docket No. 5:02CV414
In the Matter of Telxon Corp., Gary L. Grand and James G. Cleveland, Administrative Proceeding File No. 3-10715
SEC SUES FORMER TELXON CFO KEN HAVER FOR ACCOUNTING FRAUD; TELXON AND TWO FORMER OFFICERS CONSENT TO CEASE-AND-DESIST ORDER
The Securities and Exchange Commission announced that it has sued Kenneth W. Haver, the former Chief Financial Officer of Telxon Corp., for fraud in connection with the company's financial statements and earnings press release for the quarter ended September 30, 1998. The action alleges that Haver, age 43, of Akron, Ohio, intentionally or recklessly caused Telxon to improperly recognize revenue of $23.1 million from three significant transactions. Haver's improper conduct inflated Telxon's quarterly revenues by 23% and quarterly profits by 270%, from a loss of $7.3 million to a falsely stated profit of $4.1 million. The suit also alleges that Haver aided and abetted reporting, books and records, and record keeping violations by Telxon related to the September 1998 quarter and related to additional violations by Telxon from its two previous fiscal years, involving a further $16.6 million of profits that were restated. Telxon is headquartered in Akron, Ohio and, prior to being acquired by another company in December 2000, was a leading manufacturer of hand held computers and related systems.
The Commission's complaint, filed in the U.S. District Court for the Northern District of Ohio, alleges that Haver's fraudulent actions took place shortly after Telxon had rejected merger offers from a competitor. One of the September 1998 transactions involved a $2 million sale of software that was not yet written. A second transaction involved a $7 million lease-purchase by a near-bankrupt customer and Haver's agreement, on Telxon's behalf, to guarantee the customer's lease payments. The third transaction involved a $14.1 million "sale" to a financing company and Haver's agreement, on Telxon's behalf, to accept unlimited return of the product. The $16.6 million in profits restated for Telxon's fiscal years prior to September 1998 concerned Haver's failure, as Chief Financial Officer, properly to account for several customers that had delayed or disputed various payments due Telxon.
In a related action, the Commission also announced that it has instituted, and settled, an administrative proceeding against Telxon and two of its former officers: Gary L. Grand, 38, of Munroe Falls, Ohio, and James G. Cleveland, 49, of Hudson, Ohio. Grand was the company's Controller and Cleveland was the Vice President for North America (Sales). Without admitting or denying the factual findings in the Commission's order, Telxon, Grand and Cleveland each consented to the issuance of a Commission order which finds that Telxon violated the reporting, books and records, and record keeping provisions of the securities laws, that Grand and Cleveland each was a cause of Telxon's violations, and that Grand and Cleveland each violated Rule 13b2-1 under the Securities Exchange Act. Telxon, Grand and Cleveland were further ordered to cease and desist from committing or causing such violations.
 | SEC Complaint in this matter. |