IN THE UNITED STATES DISTRICT COURT
The United States Securities and Exchange Commission ("Commission") files this Complaint against Defendant Larry T. Ohms and would respectfully show the Court as follows:
1. Larry T. Ohms, a high-ranking financial officer at United States Lime & Minerals, Inc. ("U.S. Lime"), a Dallas-based company, from December 1998 until December 2001, systematically embezzled nearly $2.2 million from U.S. Lime by circumventing the company's internal controls. Ohms concealed his ongoing scheme by falsifying U.S. Lime's books and records, lying to U.S. Lime's auditors, and causing the company to file false financial statements with the Commission in its Forms 10-K and 10-Q and in a December 2000 registration statement for an offering of subscription rights for U.S. Lime common stock.
2. On January 29, 2002, shortly after Ohms abruptly resigned, U.S. Lime personnel and the company's outside auditors, Ernst & Young ("E&Y"), discovered Ohms' thefts while closing the company's books for 2001. The company immediately notified the Commission and the criminal authorities, requested that the Nasdaq National Market temporarily suspend trading in the company's stock, and issued a press release. Nasdaq lifted the trading suspension on March 27, 2002, when U.S. Lime filed its 2001 Form 10-K.
3. The Commission, in the interest of protecting the public from any further unscrupulous and illegal activity, brings this action against Ohms seeking permanent injunctive relief, an officer and director bar and disgorgement of all illicit profits and benefits Defendant received plus accrued prejudgment interest.
JURISDICTION AND VENUE
4. This Court has jurisdiction over this action pursuant to Section 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78(aa)] and Title 28 U.S.C. Section 1331. Defendant, directly and indirectly, made use of the mails and of the means and instrumentalities of interstate commerce in connection with the acts, practices and courses of business described in this Complaint. Venue is proper because many of the transactions, acts, practices and courses of business described below occurred within the jurisdiction of the Northern District of Texas.
5. Larry T. Ohms, age 40, and a resident of Carrollton, Texas, served at various times during the relevant period as U.S. Lime's vice president of finance, corporate controller, secretary and treasurer.
6. After serving as a plant controller for several public companies, Ohms accepted the position of corporate controller at U.S. Lime in July 1994. When the company's chief financial officer, Timothy Byrne ("Byrne"), became chief executive officer of U.S. Lime in December 1997, Ohms' responsibility for and control over the company's finances and accounting increased. U.S. Lime appointed Ohms to the office of corporate secretary in December 1997, treasurer in November 1998, and vice president of finance in February 2000. Byrne resigned from U.S. Lime in December 1998, leaving Ohms as the highest-ranking financial officer in the company. Thereafter, Ohms and the senior accountant were the company's only financial and accounting personnel.
7. Throughout his employment with U.S. Lime, Ohms was responsible for supervising cash disbursements at the corporate office, and ensuring compliance with the company's internal controls. Ohms also helped to prepare the company's financial statements, proxy statements, Forms 10-K and 10-Q, and financial reports for the board of directors. Ohms was the primary point of contact for the company's outside auditors, and was primarily responsible for responding to the auditors' requests for financial information and documents in connection with annual audits and quarterly reviews.
8 Almost immediately after gaining access to U.S. Lime's finances and accounting, in January 1998, Ohms began embezzling funds from U.S. Lime. From January 1998 through December 2001, Ohms misappropriated funds from U.S. Lime on over one hundred separate occasions, and in every instance, Ohms stole the money by misusing company checks. The amounts of Ohms' individual defalcations, ranging from $2,000 to $100,000, increased over time, as did the approximate total amounts Ohms misappropriated per year: 1998 - $126,000; 1999 - $282,000; 2000 - $792,000; and 2001 - $980,000. Over the course of the four-year scheme, Ohms misappropriated $2,179,195. Despite the considerable amounts Ohms embezzled, he avoided detection by adapting his scheme to changing circumstances, falsifying company books and records to conceal his thefts, and developing new methods for circumventing U.S. Lime's internal controls.
9. During 1998, Ohms stole approximately $126,000 by issuing company checks to himself, and stamping his signature and Byrne's signature on the checks with the signature plate from a mechanical check-signing device. Ohms concealed the thefts by recording the checks as payments to a law firm that had recently provided legal services to U.S. Lime in connection with the purchase of a lime plant. In this manner, Ohms not only falsified company checks, but also created dozens of check register entries that misrepresented the disposition of company funds (i.e., Ohms received the funds, instead of the law firm that appeared in the company's books) and misclassified the amounts Ohms stole (i.e., as legal expense, rather than as embezzled funds).
10. During 1999, Ohms recorded the $282,000 he embezzled as payments to Liberty Mutual Insurance Company for premiums on worker's compensation, general liability and property insurance coverage. During the first and second quarters of 1999, Ohms continued to stamp his signature and Byrne's signature on computer-generated company checks with the mechanical signature plate. During the third and fourth quarters of that year, however, Ohms obtained second signatures on checks by forging the signature of another corporate officer, or falsely representing to another corporate officer that the checks were reimbursements for Ohms' business expenses. Ohms made the checks payable to himself and to his creditors.
11. From January through April of 2000, Ohms stole $328,000, using "counter" checks (i.e., debit forms), and "starter" checks that Chase Bank of Texas, N.A., provided to U.S. Lime when it opened the account. Ohms made the starter checks payable to Chase, and exchanged them for Chase cashier's checks made payable to his personal creditors. Ohms forged the signature of another corporate officer on the starter checks, but Chase accepted the counter checks with only Ohms' signature. Ohms recorded the amounts he stole as payments to Liberty Mutual for insurance premiums.
12. During the last 18 months of his scheme, Ohms exchanged company checks, which he made payable to Chase, for Chase cashier's checks made out to his creditors, in the total amount of $1.4 million. Ohms caused the amounts to be recorded as debits to an asset account titled "prepaid financing cost." Since the amounts Ohms misappropriated were actually expenses to the company, booking those amounts to an asset account caused the company to understate its expenses and overstate its net income (or understate its net loss). Ohms obtained second signatures on the company checks by forging the signatures of other company officers and obtaining their signatures by false pretenses (e.g., falsely stating that a check made payable to Chase was an interest payment on a company loan).
13. In addition to falsifying checks and the company's check register, Ohms concealed his embezzlement by knowingly including false information in financial statements that he helped to prepare, and by providing those false financial statements to other U.S. Lime managers, to the board of directors, and to the company's outside auditors. Ohms also repeatedly lied to the auditors about the company's financials, including when he signed management representation letters indicating that the financial statements were accurate, and that the company had provided the auditors with all material information. As a result, all of the company's Forms 10-Q and 10-K, for periods beginning with the first quarter of 1998 and ending with the third quarter of 2001, included false financial statements. A December 27, 2000, Form S-3 registration statement and a related prospectus (concerning distribution to existing shareholders of subscription rights for shares of common stock) also incorporated by reference the company's Form 10-K for 1999, and its Forms 10-Q for the first three quarters of 2000. Ohms also caused the company to file those false financial statements with the Commission, by signing every Form 10-Q that the company filed during 1999-2001, and all of the company's Forms 10-K for 1998-2000. As a result, the company's audited year-end financial statements for 2000, as well as its financial statements for the third quarter of 2000 and the first three quarters of 2001, understated the company's expenses, and overstated its net income.
14. After learning of Ohms' alleged misconduct, the Commission subpoenaed Ohms to provide testimony and produce records in an effort to investigate his activity. Ohms invoked his Fifth Amendment privilege and refused to testify or produce records.
Violation of Section 10(b) of the Exchange Act and Rule 10b-5
15. Plaintiff Commission repeats and incorporates paragraphs 1 through 14 of this Complaint by reference as if set forth verbatim.
16. Ohms, directly or indirectly, singly or in concert with others, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails has: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.
17. As a part of and in furtherance of his scheme, Ohms, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence, and oral presentations, which contained untrue statements of material facts and misrepresentations of material facts, and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those set forth in paragraphs 1 through 14 above.
18. Ohms made the above-referenced misrepresentations and omissions knowingly or with recklessness regarding the truth.
19. By reason of the foregoing, Ohms violated and, unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
Violations of Section 13(b)(5) of the Exchange Act
20. Plaintiff Commission repeats and incorporates paragraphs 1 through 14 of this Complaint by reference as if set forth verbatim.
21. Ohms knowingly circumvented U.S. Lime's system of internal accounting controls and knowingly falsified U.S. Lime's books, records or accounts subject to Section 13(b)(2) of the Exchange Act.
22. Ohms, directly or indirectly, falsified or caused to be falsified, U.S. Lime's books, records and/or accounts subject to Section 13(b)(2)(A) of the Exchange Act.
23. Ohms, as an officer of U.S. Lime, directly or indirectly,
a) made, or caused to be made, a materially false or misleading statement, or
b) omitted to state, or caused another person to omit to state, material facts necessary in order to make statements made, in the light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made pursuant to Section 13 of the Exchange Act or (2) the preparation or filing of any document or report required to be filed with the Commission pursuant to Section 13 of the Exchange Act or otherwise.
24. By reason of the foregoing, Ohms violated, and unless enjoined, will continue to violate Section 13(b)(5) of the Exchange Act [15 U.S.C. §78m(b)(5)] and Rules 13b2-1 and 13b2-2 thereunder [17 C.F.R. §§240.13b-1, 13b2-2].
Aiding and Abetting Violations of Sections 13(a)(2) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13
25. Plaintiff Commission repeats and incorporates paragraphs 1 through 14 of this Complaint by reference as if set forth verbatim.
26. Ohms aided and abetted U.S. Lime in its:
(a) failure to file with the Commission, in accordance with Commission rules and regulations
(1) such information and documents as the Commission requires to keep reasonably current the information and documents required to be included in or filed with an application or registration statement filed pursuant to Section 12 of the Exchange Act [15 U.S.C. §78l], and
(2) such annual reports, certified if required by the rules and regulations of the Commission by independent public accountants, and such quarterly reports, as the Commission may prescribe;
(b) failure 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;
(c) failure to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that
(1) transactions are executed in accordance with management's general or specific authorization;
(2) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (B) to maintain accountability for assets;
(3) access to assets is permitted only in accordance with management's general or specific authorization; and
(4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences;
(d) failure to add such further information, if any, as may be necessary to make required statements, in the light of the circumstances under which they are made not misleading, to that information expressly required to be included in a statement or report;
(e) failure to file in a timely fashion with the Commission annual reports on the appropriate form authorized or prescribed for each fiscal year;
(f) failure to file in a timely fashion with the Commission quarterly reports, as required by Commission Rules 13a-13 [17 C.F.R. §240.13a-13].
27. Through December 2000, Ohms caused U.S. Lime to maintain materially inaccurate books and records regarding, among other things, its true expenses and net income. Ohms also materially misrepresented to accountants and outside auditors U.S. Lime's failure to comply with GAAP, its income and expenses, and its true financial condition. Specifically, Ohms caused U.S. Lime to materially misstate its financial condition in all of the company's Forms 10-Q and 10-K, for periods beginning with the first quarter of 1998 and ending with the third quarter of 2001.
28. By reason of their foregoing acts and practices, Ohms, with general awareness and through substantial assistance, aided and abetted U.S. Lime's violations of Sections 13(a) and 13(b)(2) of the Exchange Act [15 U.S.C. §§78m(a) and 78m(b)(2)], and Commission Rules 12b-20, 13a-1 and 13a-13 [17 C.F.R. §§240.12b-20, 240.13a-1 and 240.13a-13] thereunder.
The Commission seeks the following relief:
29. An order permanently enjoining and restraining Ohms from further violations of the federal securities laws and specifically enjoining and restraining Ohms from further violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from further aiding and abetting violations of Sections 13(a)(2) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder;
30. An order permanently enjoining and restraining Ohms from acting as a director or officer of any issuer having a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. §78l] or required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. §78o(d)];
31. An order directing Ohms to disgorge all illicit profits and benefits plus prejudgment interest realized by Ohms as a result of or attributable to the scheme alleged herein; and,
32. Such other and further relief as the Commission may show itself entitled.
DATED: October 29, 2002