U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18782 / July 13, 2004
ACCOUNTING AND AUDITING ENFORCEMENT
RELEASE NO. 2056 / July 13, 2004
Securities and Exchange Commission v. Ian Schottlaender, Case No. H-03-5785 (Hoyt) (S.D. Tex.)
SEC SETTLES WITH FORMER CIBC EXECUTIVE CHARGED WITH ABETTING ENRON'S ACCOUNTING FRAUD
The Securities and Exchange Commission today announced that on June 25, 2004, United States District Judge Lynn N. Hughes of the Southern District of Texas entered a Final Judgment against Ian Schottlaender, a former Managing Director with Canadian Imperial Bank of Commerce (CIBC) in New York City. Schottlaender consented to the Judgment. The Judgment resolves the Commission's claims against Schottlaender in the civil action filed against him, CIBC and others on December 22, 2003. As part of the Judgment, Schottlaender agreed to pay approximately $528,000 in disgorgement, penalties and prejudgment interest.
In its complaint, the Commission alleged that Schottlaender, among others, aided and abetted Enron's manipulation of its reported financial results through a series of complex structured finance transactions over a period of several years preceding Enron's bankruptcy. The 34 financings were structured as "asset sales" for accounting and financial reporting purposes, allowing Enron to hide from investors and rating agencies the true extent of its borrowings. Between June 1998 and October 2001, Enron used these disguised loans to increase reported earnings by more than $1 billion, to increase reported operating cash flows by almost $2 billion, and to avoid disclosure of more than $2.6 billion in debt on its financial statements. Enron's alternative, borrowing money using the assets as collateral, would have given Enron access to cash to meet its operating expenses, but carried with it financial reporting consequences -- increased debt, no positive effect on cash flow, and no positive effect on earnings -- that would have had a detrimental impact on Enron's credit rating and stock price.
Schottlaender consented, without admitting or denying the Commission's allegations, to the entry of a final judgment that permanently enjoins him from violating the antifraud, books and records, and internal control provisions of the federal securities laws [Sections 10(b), 13(a), 13(b)(2)(A) and (B), and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1]. In addition, Schottlaender has agreed to pay a total of $528,750: disgorgement of $249,000, a penalty of $249,000 and prejudgment interest of $30,750, and has agreed to the entry of an order barring him from serving as an officer or director of a publicly traded company for a period of five years. The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund") for ultimate distribution to victims of the fraud.
The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force, the Federal Reserve Bank of New York, and the Canadian Office of the Superintendent of Financial Institutions.
The Commission's investigation is continuing.