SEC Charges Former Executives of Apparel Company with Accounting Fraud

Litigation Release No. 24792 / April 8, 2020

Accounting and Auditing Release No. 4121 / April 8, 2020

Securities and Exchange Commission v. Jeffrey D. Cordes et al., No. 3:20-cv-00822 (N.D. Tex. filed April 8, 2020)

The Securities and Exchange Commission today charged three former executives of Ironclad Performance Wear Corp. with fraud for allegedly inflating the company's revenues through a series of manipulative and deceptive accounting gimmicks. Ironclad's former CEO and CFO have agreed to settle the Commission's claims.

The SEC's complaint alleges that from at least December 2015 through June 2017, Ironclad's senior executives, CEO Jeffrey D. Cordes of Michigan, CFO William M. Aisenberg of Texas, and Senior VP Thomas J. Felton of Texas, collaborated to inflate Ironclad's revenues by prematurely recognizing revenue before it was earned and recognizing revenue that was never earned, including booking nearly $1 million in revenues from a single client for gloves the client never bought, and that Ironclad never shipped. The complaint further alleges that the defendants took affirmative steps to hide their conduct by, among other things, moving products to a warehouse across the street, delaying moving returned product back into inventory, shipping product to different clients, and altering documents, which inflated the quarterly revenues Ironclad publicly reported during the relevant period by as much as 24 percent.

The SEC's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that Cordes, Aisenberg, and Felton violated the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder, or in the alternative that Felton aided and abetted these violations by Cordes and Aisenberg. The complaint further alleges that Cordes and Aisenberg violated Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. The complaint also charges Cordes, Aisenberg, and Felton with violating the reporting, books and records, and internal accounting control provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder, and Cordes and Aisenberg with violating Section 13(b)(2)(B) of the Exchange Act and Rule 13a-14 thereunder.

Cordes and Aisenberg have, without admitting or denying the allegations, consented to the entry of final judgments that impose permanent injunctions and officer and director bars, and require each to pay a $173,437 civil penalty. The settlements are subject to court approval.

The SEC's litigation against Felton is ongoing.

The SEC's investigation was conducted by Jennifer Turner and Laura Bennett and was supervised by David Reece and Eric Werner of the SEC's Forth Worth office. Jason Reinsch will lead the litigation, under B. David Fraser's supervision.