Stephen L. Holden, Scott P. Skooglund, Kuldershan S. Padda, and Stephan C. Beal

Litigation Release No. 18142 / May 16, 2003

Accounting and Auditing Enforcement Release No. 1784 / May 16, 2003

S.E.C. v. Stephen L. Holden, Scott P. Skooglund, Kuldershan S. Padda, and Stephan C. Beal (U.S.D.C. N.D. Illinois, Civil Action No. 01-C-7463)

The United States Securities and Exchange Commission ("Commission") today announced that it had reached a settlement with Scott P. Skooglund in connection with his role in a multi-million dollar accounting fraud involving Sabratek Corp, a now-bankrupt Skokie, Illinois manufacturer that developed and sold remote healthcare equipment. Skooglund had served as the company's Vice President of Finance and Chief Accounting Officer from November 1992 to January 2000. The Commission's lawsuit charged Skooglund and three other executives with fraudulently inflating the company's earnings during 1998 and 1999 in order to meet their previously announced quarterly projections. In the second half of 1999, when news of Sabratek's inflated operating results began to emerge, its market capitalization declined by approximately 98%.

Skooglund, a resident of Woodridge, Illinois, agreed to pay a civil penalty of $35,000 and also to pay disgorgement plus interest totaling $15,923.97, reflecting bonuses that he received during the period in which the Commission claims that Sabratek was cooking its books. Skooglund also agreed to the entry of a permanent injunction barring him from future violations of anti-fraud, record-keeping, and reporting provisions of the federal securities laws, contained in from violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b-2-2 thereunder. The court order reflecting this settlement was entered on May 14, 2003.

All of the other defendants named in the Commission's lawsuit previously settled the Commission's claims against them. Kuldershan S. Padda, the founder and former CEO of Sabratek, agreed to pay $125,000 in civil penalties. Stephen Holden, the company's Chief Financial Officer, Controller and Treasurer from August 1996 to July 1998 and its President and Treasurer from July 1998 to January 2000, agreed to disgorge bonuses (plus prejudgment interest) in the amount of $68,376 and a civil penalty of $90,000. Stephan C. Beal, the company's Vice President of Sales, agreed to disgorge bonuses and commissions totaling $29,237 (plus prejudgment interest of $6,193) that he received during the 1998-1999 period, and to pay a civil penalty of $60,000. Padda, Holden and Beal also agreed to the entry of permanent injunctions.

In the lawsuit, the Commission alleged that the defendants engaged in a scheme to overstate Sabratek's sales and results of operation in its Form 10-K for the year 1998 and Forms 10-Q for the first three quarters of 1998 and the first quarter of 1999. According to the Complaint, the scheme was carried out to enable Sabratek to meet inflated revenue expectations that Sabratek's senior management had created.

The Complaint alleged that, from the first quarter of 1998 through the first quarter of 1999 the defendants recognized numerous large, end-of-the-quarter transactions that did not qualify as sales under Generally Accepted Accounting Principles ("GAAP"). In some instances, the defendants allegedly created fictitious sales of pumps that had not been ordered by customers, but instead were parked at third-party warehouses. In other instances, they allegedly entered into sales agreements containing consignment or right-of-return provisions. In still other instances, they allegedly agreed to significant seller's obligations, including promises that Sabratek's sales force would assist Sabratek's customers in the resale of these pumps to end-users. The Commission also alleged that throughout 1998 and the first quarter of 1999, the defendants inflated Sabratek's sales by billing another company a total of $4.5 million for "consulting services" that Sabratek executives in fact largely never provided.

The Commission alleged that over the five quarters from the first quarter of 1998 through the first quarter of 1999, Sabratek, through the defendants' actions, overstated net sales by $30.7 million, or more than 60%. The Commission also alleged that through the defendants' actions, Sabratek reported total operating income of $10.3 million, when in fact had experienced an operating loss of $8 million over the five quarters in question. In the second half of 1999, when news of Sabratek's inflated operating results began to emerge, the company's market capitalization declined by $202.5 million, or 98%. On December 17, 1999, Sabratek filed a petition to reorganize under Chapter 11 of the Bankruptcy Code.