U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20756 / September 30, 2008
Securities and Exchange Commission v. Steven Wevodau, 08-Civ-8348 (GBD)(S.D.N.Y.)
On September 29, 2008, the Securities and Exchange Commission filed a civil injunctive action in United States District Court for the Southern District of New York charging Steven Wevodau, former vice president of finance for the Insurance and Education Services group of the BISYS Group, Inc., with violating the antifraud and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act'), and with aiding and abetting BISYS's violations of the Exchange Act's financial reporting, books-and-records and internal controls provisions. Wevodau has agreed to settle the case, without admitting or denying the Commission's allegations.
The Commission's complaint, filed in federal court in Manhattan, alleges that from at least July 2000 until at least March 2002, Wevodau was the senior financial official in the business unit that included BISYS's Insurance Services division, which was largely responsible for the company's reported growth during the period. Wevodau allegedly responded to senior management's focus on meeting aggressive, short-term earnings projections by encouraging and directing personnel in Insurance Services' finance department to meet earnings targets by applying a variety of fraudulent or otherwise improper accounting practices. Specifically, the complaint alleges that Wevodau caused the company to:
- engage in improper acquisition accounting by recording as revenue to BISYS the bonus commission income that had already been earned but not recorded by a company BISYS had acquired;
- create inflated and unsupported renewal and bonus commission receivables;
- create inflated and unsupported receivables for commissions on the sale of a particular insurance product offered by BISYS â" "419 plans"; and
- improperly eliminate expenses to boost income or record revenue solely to meet quarterly revenue projections.
These accounting practices allegedly substantially inflated BISYS's operating results for the quarters ended September 30, 2000 and December 31, 2000, and for the fiscal years ended June 30, 2001 and 2002 (fiscal years 2001 and 2002) and contributed substantially to the company's eventual restatement of over $100 million of Insurance Services' reported income for fiscal years 2001 through 2003.
As a result of his conduct, the complaint alleges that Wevodau, directly and indirectly, violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and is liable, pursuant to Section 20(e) of the Exchange Act, as an aider and abettor of BISYS's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
Without admitting or denying the Commission's allegations, Wevodau has agreed to settle the charges by consenting to the entry of a permanent injunction against further violations of the foregoing provisions, to pay disgorgement, penalties and prejudgment interest totaling approximately $225,000, and to be barred from serving as an officer or director of a public company for five years.
BISYS previously consented, without admitting or denying the Commission's allegations against it, to the entry of a judgment enjoining the company from violating the financial reporting, books-and-records, and internal controls provisions of the federal securities laws and ordering that it pay $25 million in disgorgement and prejudgment interest. [LR-20125 (May 23, 2007)]. In addition, David Blain, one of the directors of Insurance Services' finance department, consented, without admitting or denying the Commission's findings, to an order finding that he willfully aided and abetted and caused BISYS's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, requiring him to cease and desist from future violations, and denying him the privilege of appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after one year. [AAE Release No. 2882 (Sept. 19, 2008)].
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