U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20687 / August 22, 2008
Accounting and Auditing Enforcement Release No. 2865 / August 22, 2008
Securities and Exchange Commission v. Mark David Shapiro, et al., Civil Action No. 4:05-CV-0364, United States District Court for the Eastern District of Texas, Sherman Division (Schneider, J.) (Complaint filed September 15, 2005)
SEC Settles Enforcement Proceedings Against Former Fleming Companies, Inc. Executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher for Their Roles in Financial Fraud Scheme
The Securities and Exchange Commission announced that on August 15, 2008, the Honorable Michael H. Schneider, United States District Judge for the Eastern District of Texas, entered Final Judgments as to former Fleming Companies, Inc. executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher, in SEC v. Mark David Shapiro, et al., permanently enjoining the defendants from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder. The defendants consented to the entry of the Final Judgments without admitting or denying the allegations of the Commission's complaint. Pursuant to the Final Judgments, Abbood and Thatcher will pay civil penalties of $25,000 each, and Shapiro will pay a civil penalty of $135,000. Further, Shapiro agreed to settle proposed administrative proceedings against him pursuant to Rule 102(e) of the Commission's Rules of Practice, to be based on the entry of the Court's final judgment enjoining him. Pursuant to his offer of settlement, Shapiro consented to the issuance of a Commission order suspending him from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years.
The Commission's Complaint alleges that over several quarters in late 2001 and the first half of 2002, Fleming improperly executed and recorded a number of accounting transactions to "bridge the gap" between Wall Street expectations and disappointing actual operation results. According to the Complaint, the defendants participated directly and indirectly in this wrongdoing by obtaining misleading side letters from Fleming vendors that were used to improperly accelerate recognition of the vendors' up-front payments, in violation of generally accepted accounting principles. These transactions were the subject of settled enforcement actions the Commission brought against Fleming and several of its vendors and vendor employees on September 14, 2004. See In the Matter of Fleming Companies, Inc., Lit. Rel. No. 18884 (September 14, 2004). The Complaint alleges that Shapiro, Fleming's chief accounting officer at the time, compounded his wrongdoing by giving Fleming's outside auditors false and misleading representation letters and signing Fleming's fraudulent 2001 Form 10-K and Forms 10-Q for the first and second quarters of 2002. Further, the Complaint alleges that Shapiro inflated earnings by executing large quarter-end inventory purchases solely to generate discounts that Fleming could immediately recognize as earnings in an effort to help meet Wall Street analysts' earnings expectations. Fleming failed to disclose that these purchases were part of an intentional scheme to inflate earnings. Finally, the Complaint alleges that Shapiro improperly inflated Fleming's 2001 earnings by directing the release of extensive accounting reserves, without proper justification or disclosure.
Two other defendants, former Fleming executives Philip B. Murphy and Thomas Gerald Dahlen, Jr., previously settled Commission charges concerning the same conduct.
For additional information, see Litigation Release No. 18884 (Sept. 14, 2004).