U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20706 / September 8, 2008
Accounting and Auditing Enforcement Release No. 2874 / September 8, 2008
SEC v. United Rentals, Inc., Civil Action No. 3:08-cv-1354 (CFD) / District of Connecticut
United Rentals, Inc. to Pay $14 Million to Settle Financial Fraud Charges
The Securities and Exchange Commission announced today that it filed charges against United Rentals, Inc. (URI) alleging that URI engaged in financial fraud and in a broad range of other improper accounting practices. URI is one of the largest equipment rental companies in the world with a network of rental locations in the Unites States, Canada and Mexico.
The Commission's complaint, filed in the United States District Court for the District of Connecticut, alleges that, from late 2000 through 2002, URI engaged in a series of fraudulent transactions undertaken in order to meet URI's earnings forecasts and analyst expectations. The fraud was accomplished primarily through a series of interlocking three-party sale-leaseback transactions orchestrated by URI's then- Chief Financial Officer, Michael Nolan, and its then- Chief Acquisitions Officer, John Milne. Nolan and Milne were previously charged by the SEC for individual wrongdoing.
The complaint alleges that in these transactions URI sold used equipment to a financing company and leased it back for a short period, and then arranged for a third party equipment manufacturer to agree to sell the equipment at the end of the lease period and guarantee the financing company against any losses incurred in the resale of the equipment. URI separately guaranteed the equipment manufacturer against any losses it might incur under the guarantee it had extended to the financing company.
The SEC's complaint also alleges that in another effort to improve its earnings, URI engaged in a series of fraudulent "trade packages" with suppliers. The company sold blocks of used equipment for amounts in excess of fair value, in exchange for certain undisclosed financial inducements offered to those suppliers.
In addition, the SEC alleges that from 1997 to 2000, during a period of enormous growth through acquisitions, URI engaged in other improper accounting practices involving its valuations of acquired assets, use of acquisition reserves, and accounting for customer relationships as well as improperly accounting for other items that overstated net income, including its estimation and recording of self-insurance reserves, its recognition of equipment rental revenues, and its income tax accounting.
Without admitting or denying the charges, URI has agreed to settle the SEC's enforcement action and pay $14 million penalty, which the Commission intends to place in a Fair Fund for distribution to affected investors.
In addition to the financial penalty, URI consented to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13, thereunder. The settlement is subject to court approval.
In determining to accept URI's settlement offer, the Commission considered URI's cooperation with the Commission and its staff in the investigation leading to this action, and the remedial actions it has taken.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation. The SEC's investigation continues.