U.S. Securities and Exchange Commission
Litigation Release No. 18753 / June 17, 2004
Accounting and Auditing Enforcement Release No. 2038 / June 17, 2004
COURT ENTERS JUDGMENT AGAINST FORMER MANAGER OF MASSACHUSETTS COMPANY IN ACCOUNTING FRAUD CASE
SEC v. Bruce Hill, et al., (United States District Court for the District of Massachusetts, Civil Action No. 02-CV-11244 (EFH), Filed June 21, 2002)
The Commission announced today that on June 9, 2004, the United States District Court for the District of Massachusetts entered judgment by default against Graham J. Marshall, a former manager of Inso Corporation. The Court held Marshall liable for securities fraud, providing false information to accountants, circumventing internal accounting controls, and aiding and abetting Inso's filing of false financial information with the Commission. Marshall, age 56 and formerly of Lexington, Massachusetts, was a senior manager at Inso, a now defunct software company that was headquartered in Boston, Massachusetts. The Court ordered Marshall to pay $345,685.98 in disgorgement plus prejudgment interest, plus a $25,000 civil penalty. The Court also permanently enjoined Marshall from committing future violations, and barred Marshall from serving as an officer or director of a public company. On November 12, 2003, Marshall was indicted on criminal charges brought by the United States Attorney for the District of Massachusetts based on the same conduct at issue in the Commission's action.
The Commission filed its complaint in June 2002 against Marshall and others. The Commission's complaint alleged that Marshall arranged for a Malaysian distributor to place a $3 million purchase order on the evening of September 30, 1998, which was the close of Inso's third quarter, when an anticipated sale to a major customer fell through. The transaction was a sham and should not have been included in Inso's reported financial results because Marshall promised the distributor he would not have to pay Inso for the purchase, and that Inso would resell the software. Marshall concealed the terms of the purported sale from Inso's finance department. Consequently, Inso improperly included the $3 million purchase order as revenue in its third quarter 1998 financial statements. Marshall took steps later in 1998 to cover up the fraudulent nature of the transaction.
The Court's judgment held that Marshall violated the antifraud provisions of the federal securities laws [Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder]; circumvented Inso's internal accounting controls and falsified records [in violation of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1]; provided false information to accountants [in violation of Exchange Act Rule 13b2-2]; and aided and abetted Inso's uncharged violations of the periodic reporting and books and records provisions [in violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder].