U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23544 / May 24, 2016
Securities and Exchange Commission v. Michael J. Kipp and Joanne K. Viard, Civil Action No. 3:16-cv-00258 (W.D.N.C.); Securities and Exchange Commission v. John Pierrard, No. 3:16-cv-00257 (W.D.N.C.)
SEC Charges Corporate Officers With Earnings Management Scheme Fraud
The Securities and Exchange Commission today announced charges against three former corporate officers of North Carolina-based hygiene and sanitation company Swisher Hygiene, Inc. for their participation in a fraudulent earnings management scheme.
According to the SEC's complaint, during the second, third and fourth quarters of 2011, Michael J. Kipp, Swisher's former CFO, exploited Swisher's lack of effective internal controls and directed his accounting group to aggressively reevaluate and manipulate various acquisition-related reserves and expenses in order to increase earnings to predetermined targets tied to the expectations of the company's lenders as the basis for future acquisition financing. The SEC's complaint alleges that Joanne K. Viard, Swisher's former Director of External Reporting, identified potential acquisition-related entries that could be reclassified to meet earnings targets, and made various adjusting entries in Swisher's accounting records without adequate justification or support. The SEC's complaint also alleges that, during the closing process for fourth quarter of 2011, John Pierrard, Swisher's former Director of Financial Planning, at Kipp's direction, manipulated Swisher's allowance for doubtful accounts to increase earnings, knowing or consciously disregarding that the associated entries were not in accordance with GAAP. The alleged earnings management scheme came to light in early 2012, before Swisher filed its Form 10-K for its 2011 fiscal year.
The SEC alleges that Kipp and Viard violated and/or aided and abetted Swisher's violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-11, 13a-13, and 13b2-1 thereunder. The complaint further alleges that Kipp violated Exchange Act Section 13(b)(5) and Rules 13b2-2 and 13a-14 of the Exchange Act, respectively, and that Kipp is liable as a control person for Swisher's violations pursuant to Section 20(a) of the Exchange Act. Finally, the complaint alleges that Kipp aided and abetted Swisher's uncharged violations of the whistleblower retaliation provisions contained in Section 21F(h) of the Exchange Act. The SEC alleges that Pierrard violated Sections 17(a)(1) of the Securities Act and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5(a) and 13b2-1 thereunder.
Pierrard has agreed to settle the SEC's claims against him by consenting to the entry of a final judgment providing permanent injunctive relief against violating any of the statutes or rules he is alleged to have violated. As part of his settlement, Pierrard also consented to an officer and director bar. The final judgment does not impose a civil penalty based on Pierrard's cooperation. The settlement is subject to the approval of the court. The SEC seeks permanent injunctions, civil penalties, officer and director bars and other relief against both Kipp and Viard.
Concurrently with the filing of this settled matter, the SEC instituted settled cease-and-desist proceedings against Swisher. See In re Swisher Hygiene, Inc., Securities Act Rel. No. 10081 (May 24, 2016).
On October 7, 2015, the U.S. Attorney's Office for the Western District of North Carolina charged Pierrard in a related criminal action. On October 19, 2015, a grand jury sitting in the Western District of North Carolina, Charlotte Division, returned an indictment against Kipp and Viard.
The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of North Carolina.
SEC Complaint - (Kipp and Viard)
SEC Complaint - (Pierrard)