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UNITED STATES DISTRICT COURT
Plaintiff, the Securities and Exchange Commission (the "Commission"), alleges as follows: SUMMARY 1. This matter involves financial fraud that occurred at EA Engineering, Science, and Technology, Inc. ("EA Engineering"), which at the time was a Delaware corporation primarily engaged in the business of energy, environmental, and health and safety consulting. During EA Engineering's fiscal year ended August 31, 1999, in order to conceal project contract losses, defendant Stephen R. Becker committed fraudulent acts by, among other things, intentionally recording fictitious revenue on the books of EA Engineering in the form of false unbilled receivables. As a result, for its quarter ended May 31, 1999, unbilled accounts receivable reported to investors by EA Engineering was overstated by $1.4 million and, for its fiscal year ended August 31, 1999, unbilled accounts receivable reported to investors by EA Engineering was overstated by $1.5 million. In addition, the pre-tax loss reported to investors for the fiscal year ended August 31, 1999, was understated by $93,000. 2. By virtue of the acts alleged herein, Becker, among other things, violated, or aided and abetted violations of, statutes and rules prohibiting fraud in the purchase or sale of securities, requiring that financial information be accurately reported by public companies to the Commission and to investors, and requiring maintenance of accurate books and records by public companies. JURISDICTION 3. This Court has jurisdiction over this action pursuant to Section 21(d) and (e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78u(d) and (e)]. 4. Becker, directly or indirectly, made use of the means and instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange in connection with the acts, practices, and courses of conduct alleged herein. DEFENDANT 5. Stephen R. Becker, age 38, was EA Engineering's Regional Controller for its Baltimore Branch from 1997 to October 1999, when he left the company. He resides in Timonium, Maryland. THE ISSUER 6. EA Engineering was a Delaware corporation with its principal executive offices in Hunt Valley, Maryland. At the time of the violative conduct discussed herein, EA Engineering's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System. The company's fiscal year-end was August 31. In September 2001, EA Engineering was taken private pursuant to a management-led tender offer. Accordingly, EA Engineering is no longer a public company. THE FRAUD 7. During EA Engineering's fiscal year ended August 31, 1999, the defendant, Stephen R. Becker, concealed project contract losses from EA Engineering managers who had emphasized the importance of the company making its projected earnings. 8. Becker hid the losses by recording fictitious revenue in the form of false unbilled receivables of $1,469,000 to offset additional costs associated with the losses, and he assigned the fictitious revenue to other projects, most of which were inactive. For example, for the quarter ended May 31, 1999, Becker made a non-recurring journal entry on June 6, 1999, adding $19,497 in revenue to a project that had been inactive since fiscal year 1996. As a result of Becker's entries, the projects with additional, fictitious revenue, in the aggregate, off-set the problem projects that had "excessive" costs. To conceal his actions, Becker at times split the fictitious revenue into smaller amounts and periodically moved it among various projects to kept the projects' unbilled receivables from aging. In addition to making such entries, Becker overrode the company's contract accounting system so that the inactive projects would not be billed. 9. As a result of Becker's actions, EA Engineering overstated its unbilled accounts receivable at the end of its quarter ended May 31, 1999, by $1,408,800, and at the end of its fiscal year ended August 31, 1999, by $1,469,000. Also as a result of his actions, it understated its loss before income taxes by $93,000 for the fiscal year ended August 31, 1999. FALSE FILINGS 10. As a result of the fraudulent acts set forth herein, EA Engineering filed with the Commission and released to the public a false and misleading quarterly report on Form 10-Q for its quarter ended May 31, 1999, and a false and misleading annual report on Form 10-K for its fiscal year ended August 31, 1999. The quarterly report included financial statements that materially misrepresented the company's unbilled accounts receivable. The annual report included financial statements that materially misrepresented the company's unbilled accounts receivable and its loss before income taxes. 11. On February 4, 2000, the company announced that management had discovered accounting irregularities related to unbilled revenue and that the irregularities would cause the company to restate earnings for prior years. On June 15, 2000, EA Engineering announced that it had restated its fiscal year 1999 financial statements. The restated 1999 financial statements reduced the company's unbilled accounts receivable for its quarter ending May 31, 1999, by $1,408,800, and its unbilled accounts receivable for its fiscal year ended August 31, 1999, by $1,469,000. The restated 1999 financial statements also increased the company's loss before income taxes for the fiscal year ended August 31, 1999, by $93,000. COUNT I FRAUD Violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]; and
12. Plaintiff realleges and incorporates herein by reference paragraphs 1 through 11 above. 13. The Exchange Act prohibits use of a manipulative or deceptive device in connection with the purchase or sale of a security. 14. By reason of the foregoing, Becker, directly and indirectly, violated, and unless restrained will violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. COUNT II REPORTING Violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and
15. Plaintiff realleges and incorporates herein by reference paragraphs 1 through 11 above. 16. The Exchange Act and rules promulgated thereunder require every issuer of a registered security to file reports with the Commission which accurately reflect the issuer's financial performance and provide other information to the public. 17. By reason of the foregoing, Becker aided and abetted violations, and unless restrained will continue to aid and abet violations, of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13]. COUNT III RECORD KEEPING Violations of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] and
18. Plaintiff realleges and incorporates herein by reference paragraphs 1 through 11 above. 19. The Exchange Act requires each issuer of registered securities to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. 20. Exchange Act Rule 13b2-1 prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act. 21. By reason of the foregoing, Becker aided and abetted violations, and unless restrained will continue to aid and abet violations, of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)]. 22. By reason of the foregoing, Becker, directly and indirectly, violated, and unless restrained will violate, Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1]. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court: I. Permanently restrain and enjoin Becker, and his officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with him, and each of them, from violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Exchange Act Rules 10b-5 and 13b2-1 [17 C.F.R. §§ 240.10b-5 and 240.13b2-1], and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)(A)], and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13]. II. Order the defendant to pay a civil penalty under Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. III. Grant such other relief as this Court may deem just and appropriate. Dated: October 30, 2002
http://www.sec.gov/litigation/complaints/comp17815.htm
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