U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19353 / August 30, 2005
Accounting and Auditing Enforcement
Release No. 2303 / August 30, 2005
Securities and Exchange Commission v. David P. Levine, Michael W. Spake, Barry S. Berlin, and Douglas J. Ely, 2:05 CV 73328 (N. Edwards, J.) (E.D. Michigan, filed August 29, 2005)
SEC Charges Two Former Kmart Executives and Representatives Of A Major Vendor With Accounting Irregularities
The Securities and Exchange Commission filed settled civil charges against David P. Levine, Michael W. Spake, Barry S. Berlin, and Douglas J. Ely in the United States District Court for the Eastern District of Michigan seeking civil money penalties and instituted related settled administrative cease-and-desist proceedings. The Commission alleges that these individuals caused Kmart to issue materially false financial statements by improperly accounting for millions of dollars worth of vendor "allowances." Kmart obtained allowances from its vendors for various promotional and marketing activities. According to the Commission, defendants caused Kmart to recognize allowances prematurely on the basis of false information provided to the company's accounting department. Vendor representatives participated in the violations by co-signing false and misleading accounting documents. As a result, Kmart's net income for the fourth quarter and fiscal year ended January 31, 2001, was overstated by approximately $4.8 million as originally reported. The company restated its financial statements after filing for bankruptcy to correct these and other accounting errors.
Levine is a former Divisional Vice President of Kmart's do-it-yourself division; Spake is a former Kmart buyer in Kmart's home storage division; Berlin is a former Director of Sales at Newell Rubbermaid for the Kmart account; and Ely is a former National Account Manager at Newell Rubbermaid for the Kmart account. Without admitting or denying the findings, Levine, Spake, Berlin, and Ely consented to administrative orders to cease and desist from committing or causing any violations and any future violations of Rule 13b2-1 of the Securities Exchange Act of 1934 and from causing any violations and any future violations of Sections 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder. Without admitting or denying the allegations in the Complaint, Levine, Berlin, and Ely also consented to final judgments directing them to pay civil penalties of $35,000, $30,000, and $25,000, respectively. The proposed settlement with Spake does not impose a civil penalty based upon based upon his sworn financial statements and other documents submitted to the SEC.
SEC Complaint in this matter