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Litigation Release No. 19360 / September 6, 2005

Accounting and Auditing Enforcement
Release No. 2307 / September 6, 2005

Securities and Exchange Commission v. Del Global Technologies Corp., Inc.,et al., 04 CV 4092 (S.D.N.Y.)

Former Del Global CEO Leonard A. Trugman Agrees to $1.25 Million Settlement with SEC

The Securities and Exchange Commission announced today that it has reached a settlement of its pending financial fraud case against Leonard A. Trugman, the former chairman and chief executive officer of Del Global Technologies Corp., Inc. ("Del"), a company based in Valhalla, New York. The Commission's complaint, filed June 1, 2004 in the U.S. District Court for the Southern District of New York, alleged that Trugman (along with five former officers and/or directors of Del) participated in a multi-year financial fraud at Del between 1997 and 2000. Trugman consented to the entry of a final judgment against him without admitting or denying the allegations in the Commission's complaint.

On August 23, 2005, the Honorable Colleen McMahon, U.S. District Judge for the Southern District of New York, entered a final judgment that requires Trugman to pay $885,000 in disgorgement of ill-gotten gains, $255,000 in prejudgment interest thereon, and a $110,000 civil penalty, for a total of $1.25 million. The final judgment also enjoins Trugman from (i) violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 13b2-1 and 13b2-2, (ii) aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and (iii) controlling any person (pursuant to Exchange Act 20(a)) that violates these provisions. Additionally, the final judgment permanently bars Trugman from acting as an officer or director of a public company.

The Commission's complaint alleged, among other things, that Trugman orchestrated a financial fraud at Del that resulted in Del materially overstating its reported revenues and caused Del to make numerous material misrepresentations in Commission filings and in press releases. According to the complaint, Del routinely engaged in improper revenue recognition when it held open quarters, prematurely shipped products to third-party warehouses, and recorded sales on products that Del had not yet manufactured. The complaint also alleged that Del improperly accounted for inventory by recording obsolete inventory at full value and overstating certain engineering work in process values. In addition, the complaint alleged that Del improperly characterized certain ordinary expenses as capital expenditures. As alleged in the complaint, these actions contravened Generally Accepted Accounting Principles and resulted in the overstatement of Del's reported pre-tax income by at least $3.7 million (110%) in fiscal year 1997, $5.2 million (161%) in fiscal year 1998, and $7.9 million (466%) in fiscal year 1999 - and allowed Del to represent that its performance was on par with internal and external expectations in the first three quarters of fiscal year 2000, when in fact those expectations outpaced the company's actual performance by a wide margin.

The complaint further alleged that Trugman and others engaged in a cover-up to prevent Del's outside auditors from discovering the fraud. Del kept two sets of books (one set for its auditors and one correct set) and falsified documents such as shipping logs, quality control records, and accounts receivable documents to hide its fraudulent accounting practices from its outside auditors.

For additional information, see Litigation Release No. 18732 (June 1, 2004)


Modified: 09/06/2005