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UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") alleges: SUMMARY 1. While employed as Chief Financial Officer of a subsidiary business unit of Atchison Casting Corporation ("Atchison") known as the Pennsylvania Foundry Group, Thomas W. Lambach stole more than $900,000 of Atchison corporate funds. Lambach also made numerous and pervasive false accounting entries in the subsidiary unit's books and records, which had the effect of concealing his theft and making the Pennsylvania Foundry Group appear more profitable than it was. 2. Lambach provided the false accounting information to Atchison's corporate offices for inclusion in the company's consolidated financial statements, causing those statements to be materially overstated. As a result of Lambach's conduct, the periodic reports filed by Atchison with the Commission for fiscal years 1997, 1998, 1999, and 2000 contained financial statements that overstated Atchison's net income by between 12% and 575%, and its operating income by as much as 1580%. 3. In an effort to conceal his theft and fraudulent accounting, Lambach interfered with a financial audit conducted by Deloitte & Touche, Atchison's independent auditors, in July and August 2000. Lambach obstructed the audit by falsifying certain audit-related documents. 4. Lambach's conduct violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78m(b)(5), and Rules 10b-5 and 13b2-1 thereunder, 17 C.F.R. §§ 240.10b-5 and 240.13b2-1. JURISDICTION 5. The Commission brings this action pursuant to the authority conferred upon it by Section 21(d) of the Exchange Act of 1934, 15 U.S.C. § 78u(d), to enjoin the defendant permanently from future violations of the federal securities laws and granting other relief. 6. This Court has jurisdiction over this action, and venue is proper, pursuant to Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa. Lambach maintains a residence in this Judicial District. Many of the acts and practices alleged in this complaint took place in this District. The defendant, directly or indirectly, has 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 business alleged herein. THE DEFENDANT 7. Defendant Thomas W. Lambach is a citizen and resident of the State of Pennsylvania. Lambach was hired as Controller of Quaker Alloy, Inc. ("Quaker Alloy") in 1994, shortly after Quaker Alloy was acquired by Atchison Casting Corporation. Lambach was later promoted to Chief Financial Officer in charge of three separate Atchison subsidiaries that operated collectively as one business unit known as the Pennsylvania Foundry Group. Lambach resigned his position with Atchison in October 2000. FIRST CLAIM (Violations of Exchange Act § 10(b), 15 U.S.C. § 78j(b),
8. Paragraphs 1 through 7 are realleged and incorporated by reference herein. 9. Atchison Casting Corporation is a Kansas corporation headquartered in Atchison, Kansas. Atchison's common stock is registered with the Commission pursuant to Exchange Act Section 12(b), 15 U.S.C. § 77l(b), and trades on the New York Stock Exchange (symbol FDY). Atchison, formed in 1991, owns and operates foundries that manufacture metal castings and forgings used in a variety of products. 10. In 1994, 1995, and 1996, respectively, Atchison acquired three foundry companies located in Pennsylvania: Quaker Alloy, Inc., Empire Steel Castings, Inc., and Pennsylvania Steel Foundry & Machine Company. Collectively, Atchison treated these entities as one business unit and referred to them as the Pennsylvania Foundry Group. Lambach originally was hired as controller of Quaker Alloy, but following the acquisition of Empire Steel and Pennsylvania Steel, was promoted to Chief Financial Officer of the Pennsylvania Foundry Group as a whole. In that position, Lambach was responsible for overseeing the accounting functions of the three companies and for the financial reporting of the three companies to Atchison's corporate offices. During all times relevant to this Complaint, the financial results of the Pennsylvania Foundry Group were included in the consolidated financial statements contained in Atchison's periodic reports filed with the Commission. Lambach's Theft of Corporate Funds and Accounting Fraud 11. During his tenure as Controller and Chief Financial Officer from 1994 to 2000, Lambach stole more than $900,000 of Atchison corporate funds. Lambach misappropriated these funds by, among other methods, writing numerous checks payable to himself. Lambach wrote these checks on a bank account maintained by Quaker Alloy that was used for the payroll of Quaker Alloy's salaried employees. 12. Lambach also knowingly made or caused to be made numerous false accounting entries in the subsidiaries' books and records, which had the effect of concealing his theft and making the Pennsylvania Foundry Group appear more profitable than it actually was. None of the fraudulent entries had a proper accounting justification, and none were supported by appropriate underlying documentation. 13. Lambach effected the fraudulent accounting in several ways. In some cases, Lambach made or caused to be made "miscellaneous adjustment" journal entries to alter balances in various of the companies' accounts. The adjustments were usually made in round amounts (multiples of $1,000) and lacked any economic justification or underlying documentary support. In other cases, Lambach made or caused to be made "header adjustment" accounting entries directly into the general ledger system. Lambach made, or caused these entries to be made, by directly altering the beginning-of-the-period balance for specific accounts. As a result, Lambach manipulated these account balances without leaving any trace of a "miscellaneous adjustment" entry. In addition to these false accounting journal entries, Lambach also created fictitious accounts. For example, Lambach generated asset accounts labeled "prepaid employee benefits" and "prepaid miscellaneous" that lacked any support or substance. 14. Lambach, as CFO of the Pennsylvania Foundry Group, compiled financial reports for the three subsidiary companies based on the manipulated and false accounting information and forwarded those reports to Atchison's corporate offices. As a result, false financial information was incorporated into Atchison's consolidated financial statements. Cumulatively, Lambach's false accounting entries had the effect of materially overstating the Pennsylvania Foundry Group's assets and materially understating its liabilities. Consequently, the consolidated financial statements that Atchison filed with the Commission for its fiscal years ending June 30, 1997, 1998, 1999, and 2000 also were materially false and misleading. Atchison Financial Statements Overstated 15. For Atchison's fiscal year ended June 30, 1997, Atchison filed with the Commission quarterly reports on Forms 10-Q and an annual report on Form 10-K. Those reports were materially false and misleading because, as a result of Lambach's conduct, Atchison's financial statements overstated the company's annual operating income by approximately $2,100,000 (or 10%), net income by $1,200,000 (or 12%), and diluted earnings per share by $0.21 (or 12%). 16. For Atchison's fiscal year ended June 30, 1998, Atchison filed with the Commission quarterly reports on Forms 10-Q and an annual report on Form 10-K. Those reports were materially false and misleading because, as a result of Lambach's conduct, Atchison's financial statements overstated the company's annual operating income by approximately $4,400,000 (or 17%), net income by $2,500,000 (or 20%), and diluted earnings per share by $0.30 (or 19%). 17. For Atchison's fiscal year ended June 30, 1999, Atchison filed with the Commission quarterly reports on Forms 10-Q and an annual report on Form 10-K. Those reports were materially false and misleading because, as a result of Lambach's conduct, Atchison's financial statements overstated the company's annual operating income by approximately $8,800,000 (or 35%), net income by $6,700,000 (or 69%), and diluted earnings per share by $0.87 (or 69%). 18. For Atchison's fiscal year ended June 30, 2000, Atchison filed with the Commission quarterly reports on Forms 10-Q and an annual report on Form 10-K. Those reports were materially false and misleading because, as a result of Lambach's conduct, Atchison's financial statements overstated the company's annual operating income by approximately $19,300,000 (or 1580%), net income by $14,100,000 (or 575%), and diluted earnings per share by $1.85 (or 578%). Lambach Interferes With Deloitte & Touche's Audit
19. In July and August 2000, Lambach interfered with Deloitte & Touche's audit of the Pennsylvania Foundry Group's financial statements in an effort to conceal the pervasive false accounting information that he had created. Specifically, as part of their audit procedures relating to accounts receivable, the auditors sought to verify by confirmation letters outstanding balances owed to Atchison by certain Pennsylvania Foundry Group customers. 20. Lambach knew that the accounts receivable balances shown in the accounting system were materially overstated as a result of the false accounting entries he had generated, and therefore that the customers would not confirm the balances shown in the accounting system. Accordingly, Lambach forged the customer confirmation letters confirming the overstated balances and made it appear, by re-programming a fax machine in his office, that the confirmation letters came from customers' fax machines. Atchison Discovers Accounting Problems 21. In October 2000, shortly after Lambach resigned from his position with Atchison, Atchison personnel discovered his false accounting entries. On November 2, 2000, Atchison issued a press release stating that it had discovered "accounting errors" involving the Pennsylvania Foundry Group. The next day, Atchison announced that it was conducting an investigation into the matter and had hired a law firm to assist with that process. On April 24, 2001, Atchison announced that it had completed its investigation and had determined that the company's financial statements for the fiscal years ended June 30, 1997, through June 30, 2000, had been misstated, including $24.5 million cumulative overstatement of net income during those years. Accordingly, Atchison filed restated financial statements with the Commission at that time. 22. By reason of the foregoing, Thomas Lambach 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 (Violations of Exchange Act § 13(b)(5), 15 U.S.C. § 78m(b)(5),
23. Paragraphs 1 through 22 are realleged and incorporated by reference herein. 24. At all times relevant, Atchison's books, records, and accounts, including those of its subsidiaries, were subject to Exchange Act Section 13(b)(2)(A), 15 U.S.C. § 78m(b)(2)(A). Lambach knowingly falsified those books, records and accounts when he made the false accounting entries described above. 25. By reason of the foregoing, Lambach 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. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court enter a final judgment: (a) permanently enjoining defendant Thomas W. Lambach from violating Exchange Act Sections 10(b) and 13(b)(5), 15 U.S.C. §§ 78j(b) and 78m(b)(5), and Rules 10b-5 and 13b2-1 thereunder, 17 C.F.R. §§ 240.10b-5 and 240.13b2-1; (b) permanently enjoining defendant Thomas W. Lambach from serving as an officer or director 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, any issuer required to file reports with the Commission pursuant to 15(d) of the Exchange Act, 15 U.S.C. § 780(d), or any issuer which has issued any security traded on any national securities exchange or through any inter-dealer quotation medium; and (c) granting such other relief as the Court deems just and appropriate.
http://www.sec.gov/litigation/complaints/complr17319.htm
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