U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18464 / November 17, 2003
Accounting and Auditing Enforcement
Release No. 1915 / November 17, 2003
Securities and Exchange Commission v. Schick Technologies, Inc., David B. Schick and Fred Levine, 03 Civ. 5766-CBA (E.D.N.Y.)
SEC FILES INJUNCTIVE ACTION AGAINST SCHICK TECHNOLOGIES, INC., DAVID SCHICK AND FRED LEVINE FOR ACCOUNTING FRAUD AND COVER UP
The Commission announced today that on November 14, 2003 it filed an enforcement action in the United States District Court for the Eastern District of New York against Schick Technologies, Inc. ("STI"), a manufacturer of dental and medical devices in Long Island City, New York; David B. Schick ("Schick"), STI's founder, CEO and Chairman; and Fred Levine ("Levine"), STI's former Director and Vice President of Sales and Marketing. The Commission's complaint (the "Complaint") charges the defendants with fraud, and books and records and reporting violations for artificially inflating STI's reported revenue for the first three quarters of STI's fiscal year 1999, and then covering up the fraud by lying to STI's outside auditors.
The Complaint alleges that STI improperly booked and reported revenue from sales practices including end of quarter shipments to warehouses, consignment sales, and merchandise shipped to customers pursuant to two loaner programs where the customer accepted the product on a trial basis with no obligation to purchase the product. The defendants also failed to account properly for massive product returns and to establish sufficient sales reserves. As a result of the fraud, which led to two restatements, STI materially overstated its reported revenue for the June, September and December quarters of 1998. The Complaint alleges that Schick and Levine knew of or recklessly disregarded the fraudulent practices and deception, and were responsible for STI's improper recording and reporting of the inflated revenue and income.
The Complaint further alleges as to the defendants:
- STI is a Delaware company whose common stock traded on the NASDAQ from STI's initial public offering in July 1997 until September 1999 when it was delisted, and was quoted in the National Quotation Bureau's "pink sheets" until January 2002. Since then, STI's common stock has traded on the OTC Bulletin Board. STI's primary products during the relevant period were the CDR computed dental radiography dental imaging system that produces dental x-ray images on a computer monitor rather than on conventional x-ray film, and the accuDEXA bone densitometer that assesses bone mineral density and fracture risk.
- Schick has been STI's CEO and Chairman since he founded the Company in 1992. He was also the President of the Company from 1992 until 1999. During the relevant period, STI's accounting decisions and practices were made and controlled by Schick. He also signed each of the materially false and misleading quarterly reports at issue.
- Levine, who joined STI in 1995, became the Vice President of Sales and Marketing in 1997 in charge of all product sales, and a Director in 1998. He was terminated in August 1999.
The Commission's Complaint charges that all defendants violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 and charges, in the alternative, that Levine aided and abetted these violations. The Complaint charges that STI violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13; that Schick is liable for STI's violations as a control person of STI; that Schick and Levine also aided and abetted STI's reporting violations; and that Schick and Levine violated or aided and abetted violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2. The Commission seeks a permanent injunction against all defendants, civil penalties and a permanent officer and director bar against Schick and Levine, and disgorgement of ill-gotten gains.
SEC Complaint in this matter