U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23051 / July 25, 2014
Accounting and Auditing Enforcement Release Nos. 3569 and 3570 / July 24, 2014
Securities and Exchange Commission v. Volt Information Sciences, Inc. and Debra L. Hobbs, Civil Action No. 13-CV-237 (S.D.N.Y.) (January 10, 2013)
Securities and Exchange Commission v. Jack J. Egan, Jr., Civil Action No. 13-CV-236 (S.D.N.Y.) (January 10, 2013)
Final Judgment Entered in SEC's Accounting Fraud Case Against John ("Jack") J. Egan, Jr.
The Securities and Exchange Commission announced that on July 18, 2014, the Honorable William H. Pauley III, United States District Judge for the Southern District of New York, entered a final judgment in the Commission's civil action against John ("Jack") J. Egan, Jr. ("Egan"), the former chief financial officer of Volt Information Sciences, Inc. ("Volt"). The Commission's litigation against Egan was assisted by cooperation from Debra L. Hobbs ("Hobbs"), the former chief financial officer of a Volt subsidiary. As a result of Hobbs' cooperation, the SEC did not to seek a financial penalty against her.
The final judgment, to which Egan consented without admitting or denying the allegations in the Commission's complaint, permanently enjoins Egan from violating certain of the antifraud, representations to accountants, and certification provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 13a-14), and from aiding and abetting certain reporting, books and records, and internal controls provisions of the federal securities laws (Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-11). The final judgment also bars Egan from serving as an officer or director of a public company, and orders him to pay a $35,000 civil penalty. In addition, on July 24, 2014, the Commission instituted settled administrative proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice against Egan. In those proceedings, Egan consented to the entry of an order permanently suspending him from appearing or practicing before the Commission as an accountant.
In its complaint, the Commission alleged that Egan participated in a scheme to materially overstate revenue. For Volt's fourth quarter and fiscal year ended October 28, 2007, Egan signed and filed financial statements reporting $7.55 million of revenue that had not been earned and was not recognizable under U.S. Generally Accepted Accounting Principles. The $7.55 million of improper revenue caused Volt's net income for its fourth quarter and fiscal year ended October 28, 2007, to be materially overstated. The complaint further alleges that the scheme relied on fabricated paperwork purporting to be a contract selling software to a customer. Egan knew that any sale of the software was impossible because Volt intended to lease the same software to the same customer the following year. Nevertheless, Egan authorized that the $7.55 million in improper revenue be included in the Company's consolidated income statement for 2007, which were included in Volt's: (1) 2007 Form 10-K filed with the Commission on January 11, 2008, as amended by Form 10-K/A filed with the Commission on February 25, 2008; and (2) earnings release on Form 8-K furnished to the Commission on December 20, 2007. Egan signed the fraudulent 2007 Form 10-K and subsequent SEC filings that included the same overstatement of revenue. In addition, the complaint alleges that Egan mislead Volt's external auditors and he signed one or more certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading.
In addition, on July 24, 2014, the Commission instituted settled administrative proceedings by consent against Hobbs, who was previously enjoined by consent in this matter, pursuant to rule 102(e) of the Commission's Rules of Practice. In those proceedings, without admitting or denying the allegations of the Commission's Order, Hobbs agreed to be suspended from appearing or practicing before the Commission as an accountant, with the right to reapply for reinstatement after five years.
For further information, see SEC Litigation Release No. 22589 (January 11, 2013).