U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20668 / August 1, 2008
Accounting and Auditing Enforcement Release No. 2857 / August 1, 2008
Securities and Exchange Commission v. Michael F. Crowley, Jr., United States District Court for the Southern District of California, Civil Action No. 08-CV-1388 J (RBB)
Securities and Exchange Commission v. Jerry L. Burdick, United States District Court for the Southern District of California, Civil Action No. 08-CV-1390 JAH (JMA)
SEC Charges Former CEO and Former Director and Interim CFO of SeraCare Life Sciences With Financial Fraud
On July 31, 2008, the Securities and Exchange Commission filed securities fraud charges against Michael F. Crowley, Jr., the former chief executive officer of SeraCare Life Sciences, Inc., and Jerry L. Burdick, a former member of SeraCare's board of directors and the former interim chief financial officer, for their roles in financial fraud at SeraCare during 2005. At the time, SeraCare was based in Oceanside, Calif., and operated and continues to operate as a supplier and manufacturer of biological products for the biotechnology and pharmaceutical industry.
The SEC's complaint against Crowley, filed in federal district court in San Diego, alleges that Crowley, age 40, of San Diego, failed to disclose material information in SeraCare's Form 10-Q and earnings release for the first quarter of its fiscal year 2005 and during an earnings call with investors. Specifically, the complaint alleges that Crowley learned the day before these disclosures were made that a bill and hold sale representing almost 11% of SeraCare's quarterly net income before taxes had been cancelled by a major customer. In spite of this knowledge, Crowley failed to disclose the cancelled sale in any of SeraCare's first quarter disclosures, including the quarterly report that Crowley signed and certified, an earnings release, and an investor conference call.
The SEC also filed a separate complaint against Burdick, age 68, of Westlake Village, Calif., alleging that in SeraCare's second and third quarters of 2005, Burdick improperly released general inventory reserves that he had created following a major acquisition by SeraCare in 2004. As a result, SeraCare's net income before taxes was artificially inflated in the second and third quarters by 20% and 17%, respectively, and misstated in the corresponding quarterly reports filed by SeraCare that Burdick prepared and/or certified. The complaint further alleges that Burdick also caused misrepresentations to SeraCare's outside auditors by creating a backdated letter that was given to the auditors in order to recognize revenue on an almost $1 million sale before the close of the 2005 fiscal year. Finally, the Commission's complaint alleges that Burdick misled SeraCare's auditors by providing them an increased inventory valuation without any documented or verifiable support.
Crowley and Burdick each agreed to settle the SEC's charges without admitting or denying the allegations in the complaint. These settlements are subject to approval by the court. Crowley agreed to pay a civil penalty of $25,000 and will be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act") and Rule 13a-14 of the Securities Exchange Act of 1934 ("Exchange Act"), and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13. Burdick agreed to pay a civil penalty of $25,000 and also agreed to be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act and Rules 13a-14, 13b2-1, and 13b2-2 of the Exchange Act, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. Burdick, a certified public accountant, also agreed to a one year suspension from appearing or practicing before the Commission as an accountant under Rule 102(e) of the Commission's Rules of Practice.
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