U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18980 / November 19, 2004
Securities and Exchange Commission v. William M. Baker, et al., Civil Action No. 04-12444 DPW (D.Mass. November 18, 2004).
COMMISSION FILES CIVIL FRAUD ACTION AND IMPOSES OFFICER AND DIRECTOR BARS, BY CONSENT, ON FORMER CFO AND CORPORATE CONTROLLER OF NEW HAMPSHIRE TECHNOLOGY COMPANY
The Commission announced today the filing of a civil fraud action, in Massachusetts federal court, against five current and former employees of Robotic Vision Systems, Inc. ("Robotic"), a publicly traded technology company currently based in Nashua, New Hampshire. Four of the defendants – Frank D. Edwards, Laurence D. Cohen, Mark A. Tatkow, and Curtis W. Howes – have consented to the entry of judgments against them, without admitting or denying the allegations in the Commission's Complaint. The Commission's Complaint is pending against William Baker, the former General Manager of the 2D Business Unit of Robotic's ACIM division.
In its Complaint, the Commission alleged that during its fiscal year 2000, Robotic's ACIM division improperly recorded revenue from approximately 36 purported sales to distributors totaling approximately $4.73 million in order to meet its revenue and sales goals. According to the Complaint, between December 1999 and September 2000, ACIM negotiated numerous purported sales to its distributors and customers which contained non-standard terms that deferred, conditioned or even negated the distributors' obligations to pay for the ACIM products. Recognizing revenue from these transactions was contrary to generally accepted accounting principles ("GAAP").
According to the Complaint, most of the non-standard deals were negotiated or approved by defendant Tatkow, the former Senior Vice President of Worldwide Sales, who pressured his sales staff to induce ACIM's distributors to place such orders at the end of each quarter so that ACIM could meet its sales and revenue targets. Prior to the filing of the company's Form 10-K for fiscal year 2000, defendants Edwards (Robotic's former CFO), Cohen (Robotic's former Corporate Controller) and Howes (the former Acting President of ACIM) knew or were reckless in not knowing that the sales contained consignment terms and knew or were reckless in not knowing that the recognition of revenue from such deals had been improper. Nevertheless, they did not correct the improper revenue recognition, nor did they inform Robotic's Board of Directors, Audit Committee, or outside auditors of what they had learned. As a result, the company overstated its net income by 13.5% and its revenue by 2.1%.
In their Consents to Final Judgment, the defendants agreed, without admitting or denying the allegations in the Complaint, to the following relief:
The Commission's Complaint also alleges that Baker, the sole remaining defendant, told a distributor "in your [purchase order] to us you cannot state that you have the right to return the product" because "[w]hen you do that, we can't book the order as revenue." The improper transactions Baker negotiated, coupled with the other consignment transactions, resulted in Robotic materially overstating its revenue and net income for fiscal year 2000.
The Commission also instituted and settled cease-and-desist proceedings against Robotic and one of its distributors, ID Integration, and the President of ID Integration, Gary Moe. In the Orders, which were consented to by Robotic, ID Integration and Moe without admitting or denying the allegations in the Orders, the Commission found that Robotic committed violations of the antifraud and other provisions of the federal securities laws, while ID Integration and Moe caused violations of the antifraud and other provisions of the federal securities laws.