U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21342 / December 17, 2009
Accounting and Auditing Enforcement Release No. 3088 / December 17, 2009
Securities and Exchange Commission v. John W. Dwyer, 09-CV-2386 (CKK)(D.D.C.); Securities and Exchange Commission v. Theodore P. Noncek, 09-CV-2387 (CKK)(D.D.C.)
SEC CHARGES FORMER CFO AND CONTROLLER FOR ROLES IN ACCOUNTING VIOLATIONS AT BALLY TOTAL FITNESS
The Commission today charged former chief financial officer John W. Dwyer and former controller Theodore P. Noncek for their roles in an accounting fraud at Bally Total Fitness Holding Corporation, which settled accounting fraud charges in 2008. Bally is a Chicago-based operator of fitness centers. Without admitting or denying the allegations, Dwyer and Noncek agreed to settle the SEC’s charges. The settlements are subject to Court approval.
The Commission’s complaint against Dwyer alleges, among other things, that during the relevant time period, Dwyer violated the anti-fraud provisions, and aided and abetted Bally’s violations of the reporting, record-keeping, and internal controls provisions, of the federal securities laws. The Commission’s complaint against Noncek alleges that Noncek violated various provisions of the federal securities laws. The complaints also allege that Dwyer and Noncek were responsible for Bally’s materially false and misleading statements about its financial condition in filings with the Commission and in other public statements. These materially false and misleading statements portrayed Bally's financial condition (its net worth) and its performance (its income) as being materially better than they actually were during the relevant period.
Dwyer settled the Commission case against him by consenting to permanent injunctions based on his violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 and his aiding and abetting Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, payment of $250,000, a permanent officer-and-director bar, and a permanent bar from practice before the SEC in a related Rule 102(e) proceeding. Noncek settled the Commission case against him by consenting to permanent injunctions based on his violations of Section 17(a)(2) and (3) of the Securities Act, and his aiding and abetting Bally’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, and a two-year bar from practice before the SEC in a related Rule 102(e) proceeding.
In separate administrative proceedings, the Commission charged Ernst & Young LLP (E&Y) and six of its current and former partners. In the settled order as to E&Y, the SEC finds that E&Y knew or should have known about Bally’s fraudulent financial accounting and disclosures. The SEC further finds that E&Y issued unqualified audit opinions stating that Bally’s 2001 – 2003 financial statements were presented in conformity with Generally Accepted Accounting Principles (GAAP) and that E&Y’s audits were conducted in accordance with Generally Accepted Auditing Standards (GAAS). These opinions were false and misleading.
The SEC charged current E&Y National Office partners Randy G. Fletchall (the partner in charge of E&Y’s National Office), Mark V. Sever (E&Y’s National Director of Area Professional Practice), and Kenneth W. Peterson (the Professional Practice Director for the Lake Michigan Area/Chicago office), and retired E&Y partners Thomas D. Vogelsinger (the former Lake Michigan Area Managing Partner), and William J. Carpenter and John M. Kiss, two former E&Y Engagement Partners.
E&Y and each of the E&Y partners also has settled with the SEC without admitting or denying the charges.
Complaints in this matter