SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16300 / September 28, 1999
Accounting and Auditing Enforcement
Release No. 1170
SEC v. JERRY M. WALKER AND CRAIG R. CLARK, U.S. District Court for the District of Arizona, No. CIV-99-1737-PHX-ROS (September 27, 1999)
SEC BRINGS ENFORCEMENT PROCEEDINGS AGAINST
TOP OFFICERS OF UNISON HEALTHCARE CORPORATION
IN EARNINGS MANAGEMENT ACCOUNTING FRAUD
Walker, Clark, and Beuche Made False Accounting Adjustments,
Increasing Net Income to Meet Quarterly Earnings Estimates
The Securities and Exchange Commission announced that it filed a civil injunctive action in the United States District Court for the District of Arizona alleging that Jerry M. Walker and Craig R. Clark, two former officers of Unison HealthCare Corporation, made unsupported adjustments to Unison's quarterly net income in 1996, enabling Unison to meet publicly announced earnings estimates. Walker was the CEO, president, and a board member of Unison, and Clark was the CFO and a board member. Unison, based in Scottsdale, Arizona, owned and operated more than 50 nursing homes across the United States. Unison has changed its name and is now known as Raintree HealthCare Corporation.
The Commission's complaint alleges that, at Walker's direction, Unison's controller increased net income by a material amount for the second quarter of 1996. According to the complaint, the false adjustment enabled Unison to report earnings in line with analysts' estimates. The complaint also alleges that Walker later falsely represented to Unison's auditors that the second quarter financial statements had been prepared in conformity with generally accepted accounting principles (GAAP). The Commission also alleges that Walker and Clark instructed the controller to make materially false adjustments to revenue and expenses for the third quarter 1996, and that the adjustments enabled Unison to meet its own previously announced estimate of earnings for that quarter. According to the complaint, Unison issued press releases announcing the falsely inflated earnings figures and included the materially false figures in two quarterly reports filed with the Commission in 1996.
The complaint alleges that Unison failed to disclose in its press release and in its Form 10-Q how its third quarter earnings had been derived. According to the complaint, the press release and the third quarter Form 10-Q also failed to disclose that there were deficiencies in Unison's books and records relating to earnings and revenue.
The Commission seeks an order enjoining Walker and Clark from further violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1, and from aiding and abetting further violations of Section 13(a) and Rule 13a-13. In addition, the complaint seeks an order enjoining Walker from further violations of Rule 13b2-2. The complaint also seeks an order imposing civil monetary penalties on Walker and Clark.
Without admitting or denying the allegations in the complaint, Walker has consented to the issuance of a final judgment permanently enjoining him from committing violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2, enjoining him from aiding and abetting violations of Section 13(a) and Rule 13a-13, and ordering him to pay a $15,000 civil penalty.
The Commission also announced that Walker, a certified public accountant, has consented to an Order of the Commission, to be issued pursuant to Rule 102(e) of the Commission's Rules of Practice, that will deny Walker the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for readmission after five years.
Separately, the Commission announced that it has instituted a settled administrative proceeding as to Lisa M. Beuche, Unison's former controller, and Raintree, Unison's successor, pursuant to Rule 102(e) and Section 21C of the Exchange Act. Raintree consented to an Order of the Commission ordering it to cease and desist from committing or causing any violation and any future violation of Section 13(a) of the Exchange Act and Rule 13a-13. Beuche consented to an Order of the Commission ordering her to cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rule 13a-13. Beuche, a certified public accountant, further consented to an Order of the Commission denying her the privilege of appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice, with the right to apply for readmission after two years.