Litigation Release No. 22481 / September 17, 2012

Auditing and Accounting Enforcement Release No. 3416 / September 17, 2012

SEC v. Gilbert Fiorentino, Civil Case No. 12-cv-23388, (S.D. FL.) (September 17, 2012)


On September 17, 2012, the Securities and Exchange Commission ("Commission") filed a civil action for fraud and other violations against, and proposed settlement with, Gilbert Fiorentino, a former director of Systemax Inc. ("Systemax"), a Port Washington, N.Y.-based consumer electronics retailer.

The Commission's Complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Gilbert Fiorentino, who in addition to serving on the board was the former chief executive of Systemax's Technology Products Group in Miami, obtained over $400,000 in extra compensation directly from firms that conducted business with Systemax. Fiorentino also stole several hundred thousand dollars worth of company merchandise that was used to market Systemax's products online and in mail order catalogs. Because Fiorentino was one of Systemax's highest-paid executives, the federal securities laws required the company to disclose all compensation he received each fiscal year as well as his perks and other personal benefits. Since Fiorentino failed to disclose his extra compensation and perks to Systemax or its auditors, the amounts were not reported to shareholders correctly.

Systemax placed Fiorentino on administrative leave in April 2011. After the SEC began investigating the conduct, Fiorentino agreed to resign from all of his positions with Systemax, surrender stock and stock options valued at approximately $9.1 million, and repay his 2010 annual bonus of $480,000.

According to the SEC's complaint, the misconduct occurred from January 2006 to December 2010. Systemax sells personal computers and other consumer electronics through its websites, retail stores, and direct mail catalogs. Fiorentino arranged the extra compensation as he dealt directly with external service providers, manufacturer representatives, and other entities that conducted business with Systemax. For example, he demanded and received $5,000 to $10,000 monthly from an entity that supplied materials to Systemax's subsidiaries for use in retail and mail order operations.

The SEC further alleges that through his executive position at Systemax, Fiorentino had access to company merchandise used to market Systemax products in mail order catalogs and online. Fiorentino routinely misappropriated some of this merchandise and failed to disclose it to Systemax and its auditors.

According to the SEC's complaint, as a result of Fiorentino's actions, the information that Systemax filed with the SEC and provided to investors materially understated his compensation and omitted his personal financial interest in certain related-party transactions. Fiorentino reviewed and signed each Systemax Form 10-K from fiscal year 2006 to 2010 while knowing that it failed to make the required disclosures. Fiorentino also routinely signed management representation letters to Systemax's independent auditors stating that he did not know of any fraud or suspected fraud involving Systemax's management.

The SEC's complaint alleges that Fiorentino violated Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, 14a-3, and 14a-9. In addition, the SEC's complaint alleges that Fiorentino aided and abetted Systemax's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1.

Fiorentino has consented to the entry of an injunctive order without admitting or denying the allegations in the Commission's complaint. The proposed order would:

  1. Enjoin Fiorentino from violating the anti-fraud, proxy, lying to accountants, and record-keeping provisions of the securities laws (Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2, 14a-3, and 14a-9).
  2. Enjoin Fiorentino from aiding and abetting violations of the reporting, record-keeping, and internal control provisions of the securities laws (Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-1).
  3. Order Fiorentino to pay a $65,000 civil penalty; and
  4. Permanently bar Fiorentino from serving as an officer or director of a public company.

This settlement is subject to the approval of the U.S. District Court of Florida.