U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19290 / June 30, 2005
Accounting and Auditing Enforcement
Release No. 2270 / June 30, 2005
Securities and Exchange Commission v. David M. Hurley, Civil Action No. 1:05CV01306 (JR) (D.D.C.)
SEC SUES FORMER AAIPHARMA INC. EXECUTIVE DAVID HURLEY
HURLEY SETTLES, AGREEING TO AN INJUNCTION, PERMANENT OFFICER-AND-DIRECTOR BAR, AND PENALTY
The Securities and Exchange Commission today filed a civil action against David M. Hurley ("Hurley"), former chief operating officer of aaiPharma, Inc. ("aaiPharma"), a publicly-traded pharmaceutical company headquartered in Wilmington, North Carolina, for fraudulent transactions designed to inflate the company's reported sales revenue in 2003. Hurley has agreed to settle this matter by agreeing to entry of a judgment enjoining him from violations of the antifraud, recordkeeping, internal controls, and other provisions of the federal securities laws (Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder and aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-11, and 13a-13 thereunder). He also consented to a permanent bar prohibiting him from acting as an officer or director of a public company and to paying a civil penalty in an amount to be determined by the Court at a later date. Hurley's consent, subject to Court approval, is without admitting or denying the allegations in the Commission's complaint.
In its complaint, the Commission alleges that prior to aaiPharma's 2003 fiscal third quarter end, Hurley arranged three fraudulent sales transactions with customers to create the illusion that aaiPharma had met or exceeded its sales goals for the quarter. Although the sales Hurley arranged were either consignment sales or other types of non-final sales, aaiPharma falsely recorded the sales as final. These fraudulent sales, totaling approximately $20.6 million, were reflected in aaiPharma's financial statements included in filings made with the Commission and publicly disseminated in November 2003 and February 2004.
The complaint further alleges that in the fourth quarter of 2003, Hurley arranged another fraudulent sales transaction with an aaiPharma customer. Although the transaction gave the customer the right to return the product, aaiPharma falsely recorded it as a final sale. As a result, aaiPharma reflected fraudulent sales of approximately $8 million in a Form 8-K filed with the Commission in February 2004 that announced the company's financial results for its fiscal fourth quarter and fiscal year ended 2003.
The United States Attorney's Office for the Western District of North Carolina also previously announced that Hurley had agreed to plead guilty to a criminal charge based, in part, on conduct described in the Commission's complaint.
The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of North Carolina and the Federal Bureau of Investigation's Charlotte, North Carolina Field Office in this matter.