SECURITIES AND EXCHANGE COMMISSION Washington, D.C. Litigation Release No. 16068 / February 24, 1999 Accounting and Auditing Enforcement Release No. 1112 / February 24, 1999 Securities and Exchange Commission v. Robert S. Barton, No. 99-01881 (RCx) (C.D. Calif.) (February 23, 1999) SEC Sues Former Chief Financial Officer of Operating Division of Sunrise Medical Inc. for Accounting Fraud and Insider Trading The Securities and Exchange Commission announced today the filing of an enforcement action in federal court in Los Angeles charging Robert S. Barton ("Barton"), the former chief financial officer of Bio Clinic Corporation ("Bio Clinic"), a division of Sunrise Medical Inc. ("Sunrise Medical"), with orchestrating a large-scale accounting fraud that inflated Sunrise Medical’s earnings by 16% in 1994 and 40% in 1995. The Commission also charged Barton with insider trading for exercising Sunrise Medical stock options when he knew that the company’s financial statements materially overstated its earnings. Sunrise Medical is a Carlsbad, California manufacturer and distributor of medical devices. The complaint alleges as follows: Sunrise Medical set annual earnings bonus targets for its operating divisions, including Bio Clinic. Annual awards under the bonus program were made to division management when the division met or exceeded its targets. By 1994, Bio Clinic’s earnings were flagging and the division began having problems meeting its earnings targets. In 1994 and 1995, Barton fraudulently reduced Bio Clinic's reported expenses by at least $19.6 million by recording fictitious assets and improperly decreasing liabilities. This enabled Bio Clinic to meet its earnings targets despite the financial problems it had begun experiencing. Barton was awarded a bonus of over $25,000 in 1994. He did not receive a bonus in 1995 because the fraud had been detected. To carry out his scheme, Barton solicited the help of Bio Clinic’s controller, Sharon Longview ("Longview"), and its accounting manager, Christie Rockwood ("Rockwood"), to make the improper accounting entries. He also prevailed on the manager of Bio Clinic’s information systems, Vicki Kranawetter ("Kranawetter"), and Bio Clinic's outside computer consultant, Luther Dale Robinson ("Robinson"), to alter accounting software to conceal the entries. Barton also engaged in insider trading by exercising stock options while knowing that Sunrise Medical's public filings were materially false. By exercising his stock options before the public became aware that Sunrise Medical's filings were materially false, Barton avoided losses of $32,000. The complaint alleges that Barton violated the antifraud provisions of the Securities Act of 1933 ("Securities Act") and the antifraud, books and records, and internal accounting controls provisions of the Securities Exchange Act of 1934 ("Exchange Act"). Simultaneously with the filing of the complaint and without admitting or denying its allegations, Barton agreed to the entry of a final judgment against him. The final judgment will prohibit Barton from violating or aiding and abetting or causing violations of Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder. Based on his demonstrated inability to pay, Barton will not be required to disgorge the amount of his bonuses and losses avoided, nor will civil monetary penalties be assessed against him. Also simultaneously with the filing of the complaint, the Commission instituted two related administrative proceedings. The first charged Sunrise Medical with filing materially inaccurate financial statements with the Commission in 1994 and 1995, maintaining falsified books and records, and failing to maintain adequate internal accounting controls. Without admitting or denying the Commission’s findings, Sunrise Medical consented to an order finding that the company violated the periodic reporting, books and records, and internal accounting control provisions of the Exchange Act. The order directed Sunrise Medical to cease and desist from committing or causing any violations or future violations of these provisions: Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. [In the Matter of Sunrise Medical, Inc., Exchange Act Release No. 34-41096, February 24, 1999]. The second administrative proceeding was against Longview, Rockwood, Kranawetter, and Robinson for their roles in the accounting fraud. Without admitting or denying the Commission’s findings, Longview and Rockwood consented to an order finding that they violated the antifraud provisions of the Securities Act and the antifraud, books and records, and internal accounting control provisions of the Exchange Act. The order directed Longview and Rockwood to cease and desist from committing or causing any violations or future violations of the following provisions: Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder. The order also directed Longview to disgorge her annual bonus for 1994. Also without admitting or denying the Commission’s findings, Kranawetter and Robinson consented to an order finding that they violated the internal accounting control provisions of the Exchange Act and caused violations of the books and records provisions. The order directed Kranawetter and Robinson to cease and desist from committing or causing any violations or future violations of the following provisions: Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. [In the Matter of Sharon Longview, Christie Rockwood, Vicki Kranawetter, and Luther Dale Robinson, Securities Act Release No. 33-7640, February 24, 1999].