SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16388 / December 13, 1999
Accounting and Auditing Enforcement Release No. 1213 / December 13, 1999
SECURITIES AND EXCHANGE COMMISSION V. SOLUCORP INDUSTRIES LTD.; JOSEPH S. KEMPROWSKI; PETER R. MANTIA; JAMES G. SPARTZ; ROBERT KUHN; VICTOR HERMAN; ARLE PIERRO; AND W. BRYAN FAIR, 99 Civ. 11965 (WCC) (SDNY) (December 13, 1999)
SEC SUES SOLUCORP INDUSTRIES LTD. AND OFFICERS AND DIRECTORS
On December 13, 1999, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York, alleging that senior officers and directors of Solucorp Industries Ltd., a Canadian company which develops, markets and licenses products used in decontaminating soil, engaged in a deliberate and systematic scheme to defraud investors over a four year period. Charged in the action are Joseph S. Kemprowski, a former officer and director of, and currently consultant to, Solucorp; Peter R. Mantia, the president and a director of Solucorp; James G. Spartz, a vice president and a director of Solucorp; Robert Kuhn, a former vice president of Solucorp; and Victor Herman, CPA, the former chief financial officer of Solucorp's two principal operating subsidiaries and the preparer of Solucorp's consolidated financial statements.
The Complaint alleges that in at least ten press releases, several regulatory filings, an annual report and a letter to shareholders, Solucorp's senior management: (1) claimed to have contracts that would generate over $350 million in revenues, when, in fact, the contracts did not exist or were subject to undisclosed material contingencies; and (2) materially overstated revenues for existing contracts by publicly claiming to have contracts that would generate over $7 million in revenues, when, in fact, the contracts actually provided for the company to receive closer to $3 million. The Complaint also alleges that Solucorp senior management failed to timely announce the termination or postponement of numerous previously announced material contracts.
The Complaint also alleges that senior management falsified Solucorp's financial statements by improperly recognizing as revenue license fees that were subject to material contingencies. Solucorp's improper recognition of license fees resulted in its filing with the Commission periodic, transition and interim reports, including financial statements, on at least five occasions from December 1997 through April 1999, which overstated revenue by amounts ranging from 28% to 55%.
According to the Complaint, Kemprowski, Mantia and Herman benefited from the financial fraud when they sold Solucorp securities while in possession of material non-public information relating to the aforementioned disclosure or accounting fraud. The Complaint also alleges that Kemprowski, Mantia, Spartz, Arle Pierro, a senior vice president and director of Solucorp, and W. Bryan Fair, a director of Solucorp, improperly failed to disclose their equity ownership in Solucorp as of February 20, 1998, the effective date of Solucorp's registration with the Commission, and to timely disclose changes in that ownership that occurred through early 1999.
The Commission's Complaint seeks to permanently restrain and enjoin Solucorp, Kemprowski, Mantia, Spartz, Kuhn and Herman from violating the antifraud provisions, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and, in the case of Solucorp, Kemprowski, Mantia and Herman, Section 17(a) of the Securities Act of 1933. In addition, the Complaint seeks to enjoin Solucorp from violating the reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-10 and 13a-13 thereunder. The Complaint seeks to enjoin Solucorp, Mantia and Herman from violating the books and records and internal controls provisions of the federal securities laws, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act in the case of Solucorp, Section 13(b)(5) of the Exchange Act and Rule 13b2-1 in the case of Mantia and Herman, and Rule 13b2-2 in the case of Mantia. The Complaint further seeks to enjoin Kemprowski, Mantia, Spartz, Pierro and Fair from violating the disclosure rules for insiders, Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder. Additionally, the Complaint seeks civil monetary penalties against Kemprowski, Mantia, Spartz, Kuhn, Herman and Pierro. The Complaint seeks to permanently bar Kemprowski and Mantia from serving as officers or directors of a public company. Finally, the Complaint seeks disgorgement and prejudgment interest from Kemprowski, Mantia and Herman for trading while in possession of material, non-public information.
The Commission is continuing its investigation in this matter.