UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Plaintiff Securities and Exchange Commission (the "Commission") alleges:

SUMMARY

1. This case stems from improper accounting practices at the largest division of Thomas & Betts Corporation ("T&B"), a publicly-traded electrical components manufacturer headquartered in Memphis, Tennessee. From late 1998 through early 2000, division officers — specifically defendants Parker, Gregersen, and Calhoun — knowingly engaged in conduct, described below, that circumvented T&B's internal controls and falsified T&B's books, records, and accounts. As a result, T&B materially overstated its pre-tax income in earnings releases and in public filings with the Commission. In March 2001, T&B restated its 1999 fiscal year financial statements, including the interim quarters, to materially reduce its previously reported pre-tax income.

2. By engaging in the conduct described herein, defendants Parker and Gregersen violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5], and defendants Parker, Gregersen and Calhoun violated Exchange Act Section 13(b)(5) [15 U.S.C. § 78m(b)(5)] and Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1]. Defendant Parker also violated Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2], and defendants Gregersen and Calhoun aided and abetted Parker in doing so. Finally, defendant Thomas & Betts violated Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), and 78(b)(2)(B)], 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], and defendants Parker, Gregersen, and Calhoun aided and abetted those violations.

3. Unless enjoined, the defendants are likely to commit, and to aid and abet, such violations in the future.

JURISDICTION

4. The Court has jurisdiction over this action pursuant to Exchange Act Sections 21(d), 21(e), and 27 [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. In connection with the conduct described herein, each of the defendants, directly or indirectly, used the means or instrumentalities of interstate commerce, the mails, or the facilities of a national securities exchange.

DEFENDANTS

5. T&B is a Tennessee corporation, headquartered in Memphis, that manufactures electrical components and connectors. T&B's common stock is registered with the Commission pursuant to Exchange Act Section 12(b) and is listed on the New York Stock Exchange. Throughout the relevant period, T&B's largest division was its Electrical Components Group, which accounted for approximately 74% of its revenues.

6. Neil W. Parker, age 59, was President of T&B's Electrical Components Group from at least January 1998 through mid-2000, after which time he became T&B's Vice President of Business Development. Parker resigned from T&B in March 2001 and currently lives in Florida.

7. Robin B. Gregersen, age 47, was Vice President and Controller of T&B's Electrical Components Group from December 1998 until he resigned from T&B in April 2000. Gregersen holds BBA degrees in Accounting and Management Systems and currently lives in Tennessee.

8. Robert C. Calhoun, age 53, was Vice President of T&B's National Accounts Sales Group, a part of its Electrical Components Group, between 1996 and November 2000, and in that capacity reported directly to Parker during all periods relevant to this action. In January 2001, Calhoun became T&B's Vice President of Distributor Marketing, a position he still holds. Calhoun currently lives in Tennessee.

FACTS

The "Power Buy" Transactions

9. In 1998, T&B's Electrical Components Group began a new sales initiative featuring large transactions called "Power Buys," the purpose of which was to increase market share with its largest customers. These largest customers included major electrical suppliers with regional distribution centers, and "buying groups" formed by smaller individual electrical supply distributors banding together to obtain volume discounts. The Power Buy transactions represented a departure from T&B's usual sales practices with these customers. Although the specific terms of each Power Buy were negotiated on a case-by-case basis, they all featured some combination of the following characteristics:

• Abnormally large volume of product;
   
• Abnormally large price discounts;
   
• Extended payment terms;
   
• Negotiated near fiscal quarter-end;
   
• Shipment of product to third-party warehouses, storage of product at these warehouses, and insurance for product stored at these warehouses, all at T&B's expense;
   
• T&B's customer having an unqualified right to return product or, in some instances, automatic reversion of unsold inventory to T&B on a date certain; and
   
• Assistance by T&B in bringing about resale of the product by the customer to the end-user.

10. Defendants Parker, Gregersen, and Calhoun were all involved in the Power Buy program. Moreover, as described below, each of them knowingly engaged in conduct that circumvented T&B's internal controls and falsified T&B's books, records, and accounts. As a result, T&B improperly recorded revenue on Power Buy transactions in contravention of generally accepted accounting principles ("GAAP").

Improper Accounting for Sales With Payment Contingencies

11. Under GAAP, a seller is prohibited from recognizing revenue from a transaction if the buyer's obligation to pay is excused until the buyer resells the product. In several instances, however, T&B immediately recognized revenue from Power Buys that were subject to oral side agreements that excused the buyer from paying for product until it was resold to end users. Parker, Gregersen and Calhoun approved or were aware of many of these oral side agreements.

12. One such oral side agreement related to a $7 million Power Buy entered into in April 1999 between T&B and a large electrical distributor. A written letter of understanding between the parties required the customer to pay for products shipped to a third-party warehouse by June 28, 1999. However, pursuant to an oral side agreement negotiated by defendant Calhoun and known to defendant Parker, the customer was excused from paying for product shipped to the warehouse until it resold the product to an end user, and was assured that it could return any unsold product to T&B for full credit. This transaction, like other Power Buys, involved no transfer of economic risk from T&B to the customer. In fact, the letter of understanding specified that T&B would assume ownership of all unsold merchandise as of a date certain. Hence, this transaction did not qualify for immediate revenue recognition under GAAP.

13. Although defendant Calhoun negotiated the customer's payment contingency and reported it to defendant Parker, who approved it, neither of them disclosed it to anyone in T&B's accounting or finance department. To the contrary, without disclosing the payment contingency, and knowing that T&B's order processing system required a fixed payment due date in order to generate an invoice, Calhoun told those at T&B who were responsible for entering information into T&B's order processing system that the Power Buy had a fixed payment due date of June 28, 1999. The order processing system then fed the information into T&B's accounting system, which was used to maintain T&B's books and records.

14. Throughout its 1999 fiscal year, T&B entered into several other Power Buys containing similar payment contingencies based on oral side agreements. In each instance, Parker, Gregersen, and/or Calhoun negotiated the contingency, knew of the payment contingency at or near the inception of the transaction, or learned of the contingency prior to the issuance of T&B's Form 10-K filing for the fiscal year ended January 2, 2000. These Power Buys included an $8.4 million Power Buy in June 1999, a $4.5 million Power Buy in September 1999, a $5 million Power Buy in September 1999, a $4.2 million Power Buy in December 1999, and a $5.3 million Power Buy in December 1999.

15. Altogether, T&B's Power Buys with contingent payment obligations resulted in an overstatement of T&B's pre-tax income by 9.3% as reported in its earnings release and Form 10-Q filing for the fiscal quarter ended July 4, 1999, by 12.7% as reported in its earnings release and Form 10-Q filing for the fiscal quarter ended October 3, 1999 (by 14.6% as reported in its Form 10-Q/A filing for the fiscal quarter ended October 3, 1999), and by 7.3% as reported in its earnings release and Form 10-K filing for the fiscal year ended January 2, 2000.

16. As controller of the Electrical Components Group, Gregersen knew or was reckless in not knowing that these payment contingencies precluded immediate revenue recognition under GAAP. Similarly, Parker knew or was reckless in not knowing that these payment contingencies precluded immediate revenue recognition under GAAP. Moreover, in failing to disclose these contingences, Parker, Gregersen and Calhoun circumvented T&B's internal controls and caused T&B to prematurely and improperly recognize revenue from Power Buys.

Improper Accounting for Customer Prepayments

17. Based on the Power Buy payment contingencies described above, T&B's Power Buy customers were paying only for product sold through to their end users, thereby creating an increasing accounts receivable and cash flow problem for T&B's Electrical Components Group.

After unsuccessfully attempting to convince these Power Buy customers to pay for products not yet resold to end users, defendants Parker and Gregersen directed defendant Calhoun to solicit "prepayments" from customers which were, in essence, loans to T&B to be applied toward the customers' future purchase of product outside the Power Buy program. Ultimately, Calhoun obtained prepayments from two customers totaling approximately $40 million. Parker, Gregerson, and Calhoun knew that T&B agreed to pay these customers interest on the prepayment amounts. As Gregersen and Parker further knew or were reckless in not knowing, it was improper to allocate these prepayments to reduce outstanding accounts receivable balances on prior Power Buys, yet they failed to take appropriate action to prevent T&B from improperly doing so.

Improper Accounting for Sales Where T&B Shipped the Wrong Product

18. On at least two occasions during 1999, T&B improperly recorded revenue on Power Buys after Parker and Calhoun knowingly shipped products to a third-party warehouse that they knew were not reflective of the customer's actual order. The affected sales were Power Buys with a single customer, from which T&B recognized revenue of approximately $12 million and $5 million, respectively, in the second and fourth quarters of its 1999 fiscal year, as reflected in T&B's earnings releases and Form 10-Q or 10-K filings for the relevant periods.

19. In connection with the June 1999 Power Buy, the customer ordered category "A" (i.e., fast moving) products. Prior to shipment, Calhoun knew that T&B did not have available for shipment $12 million of the category A items. Nevertheless, in response to Parker's pressure to complete another Power Buy because T&B was still short of its second quarter sales target, and with Parker's assurance that the non-conforming product could later be "reprofiled" — i.e., returned and replaced — Calhoun, with Parker's knowledge and approval, initiated shipments of approximately $11.3 million of mostly slower-moving product to the warehouse. Ultimately, almost 80% of the product T&B shipped to the customer pursuant to this Power Buy order had to be returned and reprofiled.

20. In December 1999, the same customer had a high volume of inventory remaining from its June 1999 Power Buy. Nevertheless, Parker requested Calhoun to obtain another Power Buy from the customer so that T&B could meet its fourth-quarter sales target. Calhoun knew that the December 1999 order would again have to be reprofiled, and he communicated this to Parker. Like the June 1999 Power Buy, however, Calhoun, with Parker's knowledge and approval, caused the wrong product to be shipped to the customer, and almost 80% had to be returned and reprofiled after the close of T&B's 1999 fiscal year.

Misleading T&B's Auditors

21. During February and March 2000, while T&B's outside auditors were auditing the company's financial statements for the fiscal year ended January 2, 2000, representatives of T&B made materially false and misleading statements to the auditors about certain Power Buy transactions. For example, a senior T&B officer provided the auditors with a memorandum, dated February 26, 2000, which contained inaccurate information relating to certain Power Buys. Among other things, the memorandum falsely stated that one customer had paid in full for its 1999 Power Buys. Before providing this memorandum to the auditors, the senior T&B officer met with defendants Parker, Gregersen, and Calhoun, upon whom the senior T&B officer was depending for reliable information, and discussed the contents of the memorandum, reading aloud the portions concerning the customer's payments for its Power Buy. Although aware that the customer had not yet paid for its 1999 Power Buys, and despite knowing that the memorandum would be provided to T&B's auditors as part of their audit, Parker, Gregersen and Calhoun made no effort to correct the misstatements in the memorandum, and by their silence indicated to the senior T&B officer that the information in the memorandum was accurate. At Parker's instruction, Calhoun maintained his silence during the meeting and thereafter despite knowing that the memorandum contained inaccurate information about the customer's Power Buy payments. As a result of this silent acquiescence to the contents of the memorandum, the senior T&B officer unwittingly provided the misleading memorandum to T&B's auditors in February 2000.

22. In February 2000, the same senior T&B officer requested that Gregersen prepare a memorandum for the company's auditors demonstrating that T&B's accounting for Power Buys was in compliance with SEC Staff Accounting Bulletin 101. In response, Gregersen prepared a memorandum that contained information that he knew, or was reckless in not knowing, was inaccurate, including a statement that all Power Buys during 1999 had specific payment due dates, and a statement that all Power Buy payments were due on a date specified regardless of the buyer's success in reselling the product. Parker, who also knew or was reckless in not knowing that these statements were inaccurate, reviewed drafts of Gregersen's memorandum, but made no effort to correct it before the final version was provided to T&B's auditors in connection with their audit.

T&B's Inadequate Internal Controls and Inaccurate Books and Records

23. During the relevant period, T&B failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP. For example, T&B's internal accounting controls failed to provide reasonable assurances that side agreements, contingencies, and other information reflecting all the terms of Power Buy transactions were brought to the attention of appropriate accounting personnel to ensure compliance with GAAP.

24. As a result of T&B's failure to devise and maintain adequate internal accounting controls, and as a result of the above-described conduct of defendants Parker, Gregersen, and Calhoun, T&B failed to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected its transactions and disposition of assets. For example, certain of T&B's books, records, and accounts relating to Power Buy transactions reflected inaccurate payment due dates, failed to reflect contingencies, and contained other inaccurate information resulting in the improper and premature recognition of revenue during the relevant period.

T&B's Restatement of its Financial Statements

25. In the months following the conduct described above, new management was installed at T&B and the company determined, on its own initiative, that it would have to restate the financial statements it had previously filed with the Commission for its 1999 fiscal year and all interim quarters of that fiscal year. On August 21, 2000, T&B publicly announced, among other things, that it had taken $223.9 million in special charges during the second quarter of its 2000 fiscal year relating to accounts receivable, inventory, revenue recognition, and other items. The company further announced that it intended to restate its financial statements for its 1999 fiscal year because some of the special charges would have to be allocated to periods during its 1999 fiscal year, and that the allocation might also require restatement of the company's financial statements for previous periods and for the first quarter of its 2000 fiscal year. The company further cautioned that, until it issued its restatement, its previously issued financial statements for these periods should not be relied upon.

26. In March 2001, T&B filed its annual report on Form 10-K for the fiscal year ended December 31, 2000, in which the company announced its restatement of financial statements for the first and second quarters of its 2000 fiscal year, for the interim quarters of its 1999 fiscal year, and for its 1996 through 1999 fiscal years. The total amount of the restatements for all periods reduced T&B's previously reported pre-tax income by $114.1 million. Of that amount, approximately $18.9 million resulted from the reversal of Power Buys that had originally been recorded as sales during T&B's 1999 fiscal year. The remainder — which was largely unrelated to Power Buy transactions or to the above-described conduct of defendants Parker, Gregersen, and Calhoun, but further reflected T&B's inadequate internal controls — resulted from material errors in several accounting areas, such as shipping and pricing errors and the company's accounting for returns, rebates, freight costs, inventory, depreciation of assets, capitalization of expenses, and restructuring charges.

FIRST CLAIM

27. Paragraphs 1 through 26 are realleged and incorporated herein by reference.

28. By engaging in the conduct described above, defendants Parker and Gregersen violated Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].

SECOND CLAIM

29. Paragraphs 1 through 28 are re-alleged and incorporated herein by reference.

30. By engaging in the conduct described above, defendants Parker, Gregersen, and Calhoun violated Exchange Act Section 13(b)(5) [15 U.S.C. § 78m(b)(5)] and Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1].

THIRD CLAIM

31. Paragraphs 1 through 30 are re-alleged and incorporated herein by reference.

32. By engaging in the conduct described above, defendant Parker violated Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2], and defendants Gregersen and Calhoun aided and abetted Parker's violation.

FOURTH CLAIM

33. Paragraphs 1 through 32 are re-alleged and incorporated herein by reference.

34. By engaging in the conduct described above, defendant T&B violated Exchange Act Section 13(a) [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], and defendants Parker, Gregersen, and Calhoun aided and abetted T&B's violations.

FIFTH CLAIM

35. Paragraphs 1 through 34 are re-alleged and incorporated herein by reference.

36. By engaging in the conduct described above, defendant T&B violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)], and defendants Parker, Gregersen, and Calhoun aided and abetted T&B's violations.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court enter a final judgment, pursuant to Exchange Act Section 21(d) and the Court's equitable powers, that:

A. Permanently enjoins T&B from violating Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and

B. Permanently enjoins Parker from violating Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13;

C. Permanently enjoins defendant Gregersen from violating Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2;

D. Permanently enjoins Calhoun from violating Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2;

E. Orders Parker and Gregersen to disgorge, with interest, any ill-gotten gains, including bonuses, they received in connection with the conduct described above;

F. Orders Parker, Gregersen, and Calhoun to pay appropriate civil penalties;

G. Prohibits Parker from acting as an officer or director of any issuer that has a class of securities registered pursuant to Exchange Act Section 12 [15 U.S.C. § 78l] or that is required to file reports pursuant to Exchange Act Section 15(d) [15 U.S.C. § 78o(d)]; and

H. Grants such other and further relief as the Court deems just and appropriate.

Dated: April 1, 2003

http://www.sec.gov/litigation/complaints/comp18058.htm