U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19781 / July 31, 2006

Accounting and Auditing Enforcement Release No. 2469 / July 31, 2006

Securities and Exchange Commission v. James R. Powell, Ralph Mitchell, Mark J. Corjay, E. Suzanne Garrett, and Michael D. Scannell, Civil Action No. 4:06 - CV - 311 , U.S.D.C./Eastern District of Texas (Sherman Division)

SEC Sues Former Executive Officers of Daisytek International Corporation for Financial Fraud

On July 31, 2006, the Commission announced the filing of a civil action against five former executives of office product and computer supply distributor Daisytek International Corporation (Daisytek) of Allen, Texas. In its complaint, the Commission alleges that the defendants conducted a scheme to achieve earnings estimates by materially overstating Daisytek's earnings from 2000 through the first half of 2002. The defendants are James R. Powell (Daisytek's former CEO and president), Ralph Mitchell (Daisytek's former CFO), Mark J. Corjay (Daisytek's former controller), E. Suzanne Garrett (Daisytek's former executive vice president - merchandising division), and Michael D. Scannell (Daisytek's former executive vice president and former president of Daisytek's U.S. Operations).

The Commission also announced that defendants Powell, Corjay, and Garrett, without admitting or denying the Commission's allegations, have agreed to settlements of the Commission's action. Powell has consented to a permanent injunction and a ten-year officer and director bar, and has agreed to pay disgorgement of $829,759, plus prejudgment interest of $148,595, provided that the Commission waive that total amount and forego seeking against him a civil penalty, based on his sworn financial statement. Corjay has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $311,175, plus prejudgment interest of $51,822, provided that the Commission waive all but $100,000 of that total amount and forego seeking against him a civil penalty, based on his sworn financial statement. Corjay, a licensed CPA, has also agreed to a Commission order suspending him from practicing or appearing before the Commission as an accountant, with the right to apply for reinstatement after five years. Garrett has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $107,500 plus prejudgment interest, and a $40,000 civil penalty.

In its complaint, filed in the district court for the Northern District of Texas, Fort Worth division, the Commission alleges that, from 2000 through the first half of 2002, the defendants engaged in a fraudulent earnings enhancement scheme to make it appear that Daisytek was meeting or exceeding analysts' earnings estimates. The scheme involved improperly recording as revenue various rebates associated with inventory ordered for the sole purpose of meeting Daisytek's earnings targets, and recording fraudulent receivables. In the process, Daisytek failed to comply with Generally Accepted Accounting Principles.

In its civil action, the Commission alleges that Mitchell and Scannell violated the antifraud provisions of the Securities Act and the Exchange Act, aided and abetted violations of the Exchange Act's reporting, record keeping and internal controls provisions, and circumvented accounting controls. In addition, the Commission alleges that Mitchell lied to Daisytek's auditors, and signed false Sarbanes-Oxley certifications. In its action, the Commission seeks from Mitchell and Scannell permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, officer and director bars, and civil penalties. Specifically, the Commission alleges that Mitchell and Scannell violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, and 13b2-1 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. In addition, the complaint alleges that Mitchell violated Exchange Act Rules 13b2-2 and 13a-14.

In the agreed final judgment of permanent injunction (Judgment), Powell, Corjay, and Garrett are enjoined from violating the antifraud provisions of the Securities Act and the Exchange Act, aiding and abetting violations of the Exchange Act's reporting, record keeping and internal controls provisions, and circumventing accounting controls. In addition, in the Judgment, Powell and Corjay are enjoined from lying to auditors, and from signing false Sarbanes-Oxley certifications. Specifically, Powell, Corjay and Garrett are enjoined in the Judgment from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. In addition, Powell and Corjay are enjoined in the Judgment from violating Exchange Act Rule 13b2-2; and Powell is enjoined from violating Exchange Act Rule 13a-14.