U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18504 / December 12, 2003
Accounting and Auditing Enforcement
Release No. 1922 / December 12, 2003
Securities and Exchange Commission v. Cumulus Media Inc. et al., (U.S.D.C. N.D. Ill., Case Number 03 C 8908, filed December 10, 2003)
The Securities and Exchange Commission announced that on December 10, 2003, it filed a Complaint in the United States District Court for the Northern District of Illinois alleging that Cumulus Media Inc. and certain of its former officers engaged in two separate schemes to artificially inflate Cumulus' financial position. Specifically, the Commission's Complaint alleged that throughout 1999, Cumulus and its former Chief Financial Officer, Richard J. Bonick, Jr., prematurely recorded revenue from advertising contract packages into Cumulus' books, records and accounts. The Commission alleged that this practice caused Cumulus to overstate its net revenues and broadcast cash flows and understate its net losses for the first and third quarters of 1999. These misstated financial figures were incorporated into Cumulus' Forms 10-Q for the first and third quarters of 1999 and into Form S-3 registration statements and prospectuses for secondary offerings of Cumulus' common stock during July and November 1999. The Commission's Complaint further alleged that in a second scheme, Cumulus, its former Executive Chairman, Richard W. Weening, and its former Vice President of Finance, Daniel O'Donnell, engaged in an attempt to manage Cumulus' earnings and broadcast cash flow for the fourth quarter of 1999 in order to bring those figures in line with Wall Street analysts' expectations for that quarter. Specifically, the Commission alleged that after learning that Cumulus did not meet Wall Street analysts' expectations for the fourth quarter of 1999, Weening instructed O'Donnell to amend agreements with two related companies adding provisions to the agreements that would condition the amount of money paid by Cumulus to the related companies on Cumulus' performance as compared to analyst expectations. At the time he instructed O'Donnell to amend the agreements, Weening knew that Cumulus' performance for the fourth quarter of 1999 was below analyst expectations. At that time, Weening also knew that the amendments would require the related companies to refund money paid to them by Cumulus in order for Cumulus to meet analysts' expectations for the fourth quarter of 1999. When Cumulus' auditors eventually learned of this practice, they told Weening that the manner in which he was attempting to record the effect of the amendments was indicative of earnings management. Based on these comments, Cumulus canceled the amended agreements and reversed related accounting entries prior to their inclusion in Cumulus' financial statements.
All of the defendants, without admitting or denying the allegations of the Complaint, consented to the entry of final judgments against them upon filing of the Complaint. Bonick consented to the imposition of an order permanently enjoining him from violating or aiding and abetting violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-13 and 13b2-1 thereunder for his role in overstating Cumulus' net revenues and broadcast cash flows and understating Cumulus' net losses. Bonick also agreed to pay a civil penalty of $50,000. In addition, Weening and O'Donnell consented to the imposition of orders permanently enjoining them from violating or aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder for their roles in the attempt to manage Cumulus' earnings and broadcast cash flows. Weening and O'Donnell also agreed to pay civil penalties of $75,000 and $40,000 respectively. Cumulus consented to the imposition of an order permanently enjoining it from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-13 and 13b2-1 thereunder as a result of the two schemes.
SEC Complaint in this matter