U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19485 / December 5, 2005
Accounting and Auditing Enforcement
Release No. 2352 / December 5, 2005
Securities And Exchange Commission v. Cedric Kushner Promotions, Inc., et al. Civil Action No. 04 CV 2324 (S.D.N.Y.) (TPG) (AJP)
Boxing Promoter Cedric Kushner Promotions, Inc. and its Founder and Namesake, Cedric Kushner, Settle SEC Litigation Relating to False and Misleading Financial Statements Filed Prior to Auditors' Completion of 2002 Audit
On November 30, 2005, the U.S. District Court for the Southern District of New York entered a final judgment by consent against Cedric Kushner ("Kushner"), the Chairman of the Board, President, and Chief Executive Officer of New York-based boxing promoter Cedric Kushner Promotions, Inc. ("CKP"). On December 2, 2005, the Court entered a final judgment by consent against CKP. Without admitting or denying the allegations of the Commission's March 24, 2004 Complaint charging CKP with filing an annual report and an amended annual report containing materially false and misleading financial statements in May 2003, CKP and Kushner have agreed to settle all charges asserted by the Commission. See Litigation Release No. 18638 (March 25, 2004). CKP consented to issuance of an order imposing a fraud injunction and requiring certain remedial undertakings, and Kushner consented to issuance of an order imposing a fraud injunction and a $60,000 civil penalty, and permanently barring him from serving as an officer or director of a public company.
As alleged in the SEC's Complaint, on May 20, 2003, CKP filed a Form 10-KSB for the year ended December 31, 2002, which falsely represented that two separate audit firms had issued unqualified reports approving the firm's financial statements. In fact, the audit was not yet complete, and neither auditor had yet issued a report or consented to the filing of the Form 10-KSB. The Complaint alleges further that the financial statements misstated, among other things, the company's total assets by over 100%, but that Kushner executed the certification required by the Sarbanes-Oxley Act that they fairly presented the company's financial condition. On May 23, 2003, the company filed an amended Form 10-KSB which disclosed that the auditors had not consented to the May 20 filing, but, the Complaint alleges, the audit was still not complete as of May 23 and the financial statements which accompanied that filing were also materially false and misleading. Further, according to the Complaint, the company failed to devise and maintain internal controls sufficient to ensure that transactions were recorded accurately.
CKP, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a final judgment permanently enjoining it from violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20 and 13a-1 thereunder; and ordering it to implement certain remedial undertakings. The remedial undertakings include appointment of new Chief Executive and Financial Officers, creation of an independent audit committee and majority independent board of directors, and retention of an independent consultant to analyze the company's internal accounting controls, recommend improvements and oversee implementation of those improvements. These undertakings represent an unusual departure from the Commission's policy of limited intrusion into corporate governance, but were required by the unique facts of this case: the company's current two person board of directors consists of its Chairman, President and CEO Kushner who will now be barred from serving as an officer or director of any public company, and its Principal Financial and Accounting Officer James DiLorenzo who is a defendant litigating similar charges of fraud brought by the Commission. Further, Kushner and DiLorenzo collectively are beneficial owners of 45% of the company's outstanding voting shares.
Kushner, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a final judgment: (1) permanently enjoining him from violating Exchange Act Section 10(b) and Exchange Act Rules 10b-5 and 13a-14 (the Sarbanes-Oxley certification provision), aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and controlling others in the commission of the aforementioned violations; (2) ordering him to pay a civil penalty of $60,000; and (3) permanently barring him from serving as an officer or director of a public company.