Securities and Exchange Commission
Litigation Release No. 17716 / September 6, 2002
Accounting and Auditing Enforcement Release No. 1625 / September 10, 2002
Securities and Exchange Commission v. Yervant David Lepejian, , United States District Court for the Northern District of California (San Jose Division), Civil Action No. C 02-4308 JF (PVT)
SEC Sues Silicon Valley CEO for Fabricating Over 80% of Company's Revenue
The Securities and Exchange Commission today filed a complaint against the former President, Chairman, and CEO of HPL Technologies, Inc., charging him with fabricating over 80% of the San Jose software company's reported sales for fiscal 2002. The Commission's complaint alleges that Yervant David Lepejian, a 41-year-old Palo Alto resident, repeatedly created fake customer purchase orders, and then covered up his fraud by doctoring financial records and forging letters to HPL's auditors verifying the sales. According to the Commission, Lepejian ultimately created over $28 million in non-existent sales, causing the Company to overstate its revenue for fiscal 2002 by 328%. Without admitting or denying the allegations, Lepejian has agreed to the entry of an order enjoining him from future violations of these provisions, permanently barring him from acting as an officer or director of a publicly-held company, and requiring him to pay disgorgement and monetary penalties in an amount to be set by the court.
The Commission's complaint alleges that Lepejian began his fraud in anticipation of HPL's July 2001 initial public offering. Lepejian forged purchase orders from HPL customers and generated phony shipping documents showing that the software had been delivered to the customers. HPL raised over $75 million from investors in its IPO based, according to the Commission, on financial results fraudulently inflated by Lepejian. The Commission's complaint further alleges that Lepejian's fraud escalated over the next year, with Lepejian repeatedly creating fake purchase orders at the end of each quarter in order to boost the Company's revenue; in one quarter, over 90% of HPL's reported revenue was wholly fictitious.
The complaint also charges that Lepejian engaged in a massive cover-up to conceal his fraud. According to the complaint, Lepejian doctored bank records to create the appearance of millions of dollars in non-existent customer payments. Lepejian also borrowed millions of dollars from his brokerage accounts - secured by his personal HPL stock holdings - and funneled the money into the Company in the guise of customer payments. The Commission further alleges that Lepejian repeatedly forged letters from HPL customers confirming the purchases, at one point arranging a conference call between the Company's auditors and a friend posing as an HPL customer.
The complaint charges Lepejian with securities fraud (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder), lying to accountants (Rule 13b2-2 under the Exchange Act), falsifying the company's books and records (Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder), causing HPL to report false financial information to the Commission (Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder), and causing HPL's failure to maintain accurate books and records and internal controls (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act).