Litigation Release No. 19951 / December 20, 2006

Accounting and Auditing Enforcement
Release No. 2526 / December 20, 2006

SEC v. Paul E. Yarick, Civil Action No. 06-1029-CV-W-REL (W.D. Mo.)

SEC Files Antifraud Action Against Former Principal Financial Officer of Interstate Bakeries Corporation

Interstate Bakeries Corporation Agrees To Cease and Desist From Future Securities Law Violations

On December 20, 2006, the Securities and Exchange Commission filed a complaint in the United States District Court for the Western District of Missouri against Paul E. Yarick, the former principal financial officer of Interstate Bakeries Corporation ("IBC"), the baker and distributor of Wonder, Dolly Madison, Hostess, and other well-known brands. The complaint alleges that Yarick violated or aided and abetted violations of the anti-fraud, record-keeping, internal controls and reporting provisions of the federal securities laws by misleading IBC investors about the adequacy of the company's workers' compensation reserves and, consequently, the company's earnings.

According to the SEC's complaint, related to IBC's fiscal 2004 second and third quarters, Yarick disregarded workers' compensation liabilities estimates provided by IBC's insurance consultant, on which IBC historically had relied to set its workers' compensation reserve. Instead, Yarick used obsolete information that he had been advised was unreliable to set IBC's quarterly workers' compensation reserve for these quarters. Accordingly, IBC failed to account for its workers' compensation reserve in accordance with Generally Accepted Accounting Principles. The complaint further alleges that, as a result of Yarick's conduct, IBC filed financial statements in its Forms 10-Q for the fiscal 2004 second and third quarters that understated IBC's reserves by at least $30 million. Consequently, IBC materially overstated its pre-tax income in its Form 10-Q for the period ended November 15, 2003, and its cumulative fiscal third quarter pre-tax income in its Form 10-Q for the period ended March 6, 2004.

Yarick, without admitting or denying the allegations in the complaint, consented to the entry of a permanent injunction by the United States District Court enjoining him from violating Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, 13b2-2 thereunder and aiding and abetting violations of Sections13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-11, and 13a-13 thereunder. The agreed court order also imposed upon him a five-year officer and director bar and ordered him to pay a civil penalty of $50,000.

Separately, IBC consented, on a neither admit-nor-deny basis, to the entry of a Commission order to cease and desist from future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.

SEC Complaint in this matter