U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19746 / June 28, 2006
Accounting and Auditing Enforcement Release No. 2452 / June 28, 2006
Securities and Exchange Commission v. Virbac Corporation, Thomas L. Bell, Joseph A. Rougraff, Douglas A. Hubert, James C. Robison, and Craig S. Campbell, Civil Action No. 4-06CV-453-A, U.S.D.C./Northern District of Texas (Fort Worth Division)
In the Matter of Vedco, Inc. and Craig S. Campbell, Exchange Act Rel. No. 33-8716
In the Matter of Walco International, Inc. and James C. Robison, Exchange Act Rel. No. 33-8717
SEC Settles Action against Virbac Corporation, its Former CEO, CFO, and VP, and Two Virbac Distributors and their Officers
On June 28, 2006, the Commission announced the filing and simultaneous settlement of a civil action against Virbac Corporation (“Virbac”), a Fort Worth, Texas, manufacturer and distributor of animal health products, Thomas L. Bell, Virbac’s former CEO and president, Joseph A. Rougraff, Virbac’s former CFO, and Douglas A. Hubert, Virbac’s former Veterinary Division vice president. In its complaint, filed in the district court for the Northern District of Texas, Fort Worth division, the Commission alleges that, from late 2000 through the first half of 2003, Virbac — through Bell, Rougraff and Hubert — engaged in a fraudulent revenue inflation and expense deferral scheme. In addition, the Commission announced the institution and simultaneous settlement of cease-and-desist proceedings brought against Virbac distributors Vedco, Inc. (“Vedco”) and Walco International, Inc. (“Walco”), and against Vedco general manager Craig S. Campbell, and Walco chairman and CEO James C. Robison, for causing certain violations by Virbac, Bell, Rougraff and Hubert.
The Commission alleges in its complaint that Virbac engaged in a scheme orchestrated by Bell, and that Bell was assisted by Rougraff, Hubert, Vedco, Walco, Campbell, and Robison. The scheme involved the improper recognition of revenue by means of channel-stuffing, or “loading” of product to distributors, by recording revenue from sham transactions, and by recording revenue from transactions occurring after period-end. As a result of the scheme, Virbac met unrealistic revenue and earnings projections and managed to sustain the illusion of rapid growth — by fraudulently inflating its revenues and net income by as much as 9% and 694%, respectively, in a given period. Virbac also manipulated reserves and accruals to overstate earnings. In the process, Virbac failed to comply with Generally Accepted Accounting Principles.
In the settled civil action, Virbac, Bell, Rougraff and Hubert consented to a judgment of permanent injunction, enjoining them from violating, directly or indirectly, the antifraud provisions of the Securities Act and Exchange Act, and from aiding and abetting the reporting, recordkeeping and internal controls provisions of the Exchange Act. In addition, Bell, Rougraff and Hubert consented to be enjoined from violating, directly or indirectly, the Exchange Act’s financial record falsification, internal controls circumvention, and auditor deception prohibitions, and Bell and Rougraff consented to be enjoined from violating, directly or indirectly, the Sarbanes-Oxley certification provision.
As part of the settlement of the civil action, the defendants agreed to additional remedies: Virbac agreed to undertakings to enhance its financial reporting through employee training and certification; Bell consented to an officer and director bar and agreed to pay $95,045 in disgorgement plus prejudgment interest of $15,091, and a $150,000 civil penalty; Rougraff consented to an officer and director bar and agreed to pay $26,668 in disgorgement plus prejudgment interest of $5,656, and a $100,000 civil penalty; and Hubert consented to a five-year officer and director bar and agreed to pay $19,057 in disgorgement plus prejudgment interest of $4,233, provided, however, that the Commission waive payment and not impose a civil penalty based on his sworn financial statement. In consenting to the judgment, Virbac, Bell, Rougraff and Hubert neither admitted nor denied the non-jurisdictional allegations in the Commission’s compliant.
In the settled cease-and-desist proceedings, Walco, Vedco, Robison and Campbell consented to a Commission order to cease and desist from committing or causing violations of certain antifraud provisions of the Securities Act, violations of the Exchange Act’s reporting, recordkeeping and internal controls provisions, and violations of the Exchange Act’s financial record falsification and internal controls circumvention prohibitions, and additionally, as regards Vedco and Campbell, violations of the Exchange Act’s auditor deception prohibition. As part of its settlement with Robison and Campbell, the Commission named them in the above-referenced civil action solely for the purpose of obtaining against them the $50,000 civil penalty Robison and Campbell each agreed to pay, and the Commission filed and simultaneously settled the civil action against them. In consenting to the cease-and-desist order, and in Robison’s and Campbell’s each agreeing to pay a civil penalty in settlement of the civil action, Walco, Vedco, Robison and Campbell neither admitted nor denied the Commission’s findings.