U.S. Securities and Exchange Commission
Litigation Release No. 18201 / June 25, 2003
Accounting and Auditing Release No. 1806 / June 25, 2003
Securities and Exchange Commission v. Peter J. Webb, (Civil Action No. CV 03-4526 AHM (RNBx) (C.D. Cal.).
SEC Charges Former Sales Vice President of Digital Lava, Inc. with Inflating Revenues
The Securities and Exchange Commission announced today that it filed a complaint against Peter J. Webb, age 50, of Southlake, Texas, the former Vice President of Sales for Digital Lava, Inc., for inflating revenues for Digital Lava's fiscal quarter ended September 30, 2000 ("Q3 2000"). According to the Commission's complaint, filed in federal court in Los Angeles, Webb engaged in fraudulent sales practices to increase Digital Lava's revenue by 54% during Q3 2000, which resulted in Digital Lava reporting false financial information in its Form 10-Q for that quarter. On March 21, 2001, Digital Lava restated its Q3 2000 revenues from $1.7 million to $1.1 million. Simultaneous with the filing of the complaint, Webb settled the action. He consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining him from future violations of the charged provisions.
Digital Lava, previously headquartered in Marina Del Rey, California, provided digital publishing services and software products that created on-demand, interactive presentations, training, and communication services until its dissolution on January 30, 2002. Its stock previously traded on the Nasdaq Stock Market.
The Commission's complaint alleges that during Q3 2000, Webb entered into several transactions with Digital Lava's dealers that involved placing contingencies, some documented in side letters, on the sale of a new product called Firestream. Webb concealed the contingencies from Digital Lava's management and its auditors, which caused Digital Lava to improperly recognize revenue on these sales. As a result, Digital Lava overstated revenue from its Firestream sales in Q3 2000 by $598,000, or 54%.
The Commission charged Webb with violating or aiding and abetting violations of provisions of the federal securities laws, including the antifraud provisions (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder), record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder), internal controls provision (Sections 13(b)(5) of the Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 under the Exchange Act).
In a related administrative proceeding announced today, the Commission also charged Robert C. Cloyd, former Vice President of Sales for Three Point Digital, one of Digital Lava's dealers, with causing Webb's violation. Cloyd, without admitting or denying the findings, consented to the entry of an Order that he cease and desist from committing or causing violations of certain provisions of the federal securities laws. The Commission found that Cloyd provided a false audit confirmation to Digital Lava's auditors for $319,000, which represented the largest transaction Digital Lava reversed in Q3 2000. For further information, see Administrative Proceeding File No. 3-11166 (June 25, 2003).