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U.S. Securities and Exchange Commission


Litigation Release No. 21097 / June 22, 2009

Accounting and Auditing Enforcement Release No. 2997

SEC v. Warren B. Schmidgall and David E. Watson, Civil Action No. 4:08-cv-00677 (W.D. Mo.)


The Securities and Exchange Commission ("Commission") announced today that on June 22, 2009, the United States District Court for the Western District of Missouri entered a final judgment against Warren B. Schmidgall, former chief financial officer of American Italian Pasta Company ("AIPC"). The final judgment settles the Commission's claims against Schmidgall that were asserted in a civil action filed on September 15, 2008 against Schmidgall and AIPC's former executive vice president of corporate development and strategy, David E. Watson, alleging securities fraud and other violations of the federal securities laws. The Commission's case against Watson is ongoing.

In its complaint, the Commission alleged that from AIPC's fiscal year 2002 through the second quarter of its fiscal year 2004, Schmidgall engaged in a fraudulent accounting scheme to mislead the investing public about the growth of the company's earnings and to increase artificially the company's stock price. According to the complaint, the fraudulent accounting, and other errors arising from inadequate internal controls, resulted in the overstatement of AIPC's pre-tax income for the relevant period by approximately $59 million, or 66 percent.

Without admitting or denying the allegations in the Commission's complaint, Schmidgall consented to a final judgment enjoining him from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 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. Further, Schmidgall agreed to pay disgorgement of $28,500, prejudgment interest of $9,788, and a $100,000 civil penalty. Also, the final judgment bars Schmidgall from serving as an officer or director of a public company.

In a related criminal action, Schmidgall pled guilty to one count of conspiracy to commit wire fraud for his role in concealing AIPC's true financial condition and filing materially false reports with the Commission. [United States v. Warren B. Schmidgall, No. 08-00260-01-Cr-W-DW.] Schmidgall has not yet been sentenced. The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Western District of Missouri and the Kansas City Field Office of the Federal Bureau of Investigation.

For more information on earlier actions in this case, see LR-20715 (Sept. 15, 2008).



Modified: 06/22/2009