U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19300 / July 11, 2005
Accounting and Auditing Enforcement
Release No. 2276 / July 11, 2005
Securities and Exchange Commission v. Mark Cocchiola, et al., Civil Action No. 05-3450 (D.N.J.)
SEC FILES FRAUD ACTION AGAINST MARK COCCHIOLA AND STEVEN VENECHANOS, THE FORMER CEO AND CFO OF SUPREMA SPECIALTIES, INC.
U.S. ATTORNEY'S OFFICE FOR THE DISTRICT OF NEW JERSEY INDICTS COCCHIOLA AND VENECHANOS
On July 11, 2005, the Securities and Exchange Commission filed a civil complaint in the United States District Court for the District of New Jersey charging the former CEO, president and chairman of the board of directors, Mark Cocchiola, and the former CFO, secretary and director, Steven Venechanos, of Suprema Specialties, Inc. ("Suprema"), with violating the antifraud and other provisions of the federal securities laws in connection with their participation in a multi-year fraud orchestrated by Suprema's senior management. Prior to its delisting in early 2002, Suprema -- a Paterson, New Jersey-based cheese manufacturer -- was a public company whose securities traded on the Nasdaq National Market System.
In its complaint, the Commission alleges that Suprema engaged in fraudulent "round-tripping" transactions that resulted in total misstatements of Suprema's reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002. The complaint further alleges that the scheme resulted in total misstatements of Suprema's reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years.
According to the complaint, the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor." As the complaint alleges, the customer and vendor in each circle tended to have a common owner. The complaint alleges that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions. Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were generally drawn from Suprema's line of credit, which increased as Suprema's accounts receivable grew. With rare exceptions, the complaint alleges, no goods were actually sold, purchased, or exchanged in these transactions.
The Commission alleges that Cocchiola and Venechanos were aware of, approved of, and participated in the fraud from at least in or around February 2000. The complaint alleges that, among other things, Cocchiola and Venechanos signed and caused to be filed an annual report on Form 10-K for the 2000 and 2001 fiscal year, and a registration statement on Form S-2 for secondary public offerings of Suprema stock in August 2000 and November 2001, which included financial statements for the fiscal year 1999 and subsequent reporting periods, which Cocchiola and Venechanos knew, were reckless in not knowing, or should have known were materially false and misleading. The complaint further alleges that Cocchiola and Venechanos signed and caused to be filed a Form 10-Q for the first quarter of the 2002 fiscal year, which included financial statements for the quarter ended on September 30, 2001, which Cocchiola and Venechanos knew, were reckless in not knowing, or should have known were materially false and misleading. Furthermore, the complaint alleges that Cocchiola and Venechanos received illicit gains of over $4.8 million and $1.4 million, respectively, by selling Suprema stock during the commission of the fraud.
Based on these allegations, the Commission charged Cocchiola and Venechanos with: (i) securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; (ii) knowingly circumventing internal accounting controls and knowingly falsifying corporate books and records in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; (iii) lying to the company's independent auditors in violation of Exchange Act Rule 13b2-2; and (iv) aiding and abetting Suprema's violations of the periodic reporting, books and records, and internal accounting controls provisions of Exchange Act Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The Commission is seeking permanent injunctions, officer and director bars, civil penalties, and disgorgement with prejudgment interest.
Previously, in January 2004, the Commission filed securities fraud and related charges against the former controller, former operations manager, and several former customers and vendors of Suprema and their owners in federal district court for the District of New Jersey for their participation in the financial fraud at Suprema. See SEC v. Robert Quattrone, et al., Civil Action No. 04-33(SRC) (D.N.J.) (Lit. Rel. No. 18534 (January 7, 2004)). In March 2005, the Commission filed securities fraud and related charges in the same court against the part owner and operator of other participating customers and vendors, and certain of those entities. See SEC v. Jack Gaglio, Civil Action No. 3:05-CV-01195-SRC-TJB (D.N.J.) (Lit. Rel. No. 19111 (March 2, 2005)). All the defendants in those actions have settled the Commission's claims for injunctive relief and officer and director bars, and consented to the Court determining at a later date the Commission's claims against them for monetary relief.
Also today, the United States Attorney for the District of New Jersey announced the indictment of Cocchiola and Venechanos on 38 felony counts of conspiracy, bank fraud, securities fraud, mail fraud and wire fraud.
The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Newark Office of the Federal Bureau of Investigation, and the Office of Criminal Investigations of the U.S. Food and Drug Administration in Jersey City, New Jersey in its investigation.