United States Securities and Exchange Commission
Litigation Release No. 16457 / February 29, 2000
Accounting and Auditing Enforcement Release No. 1233 / February 29, 2000
SECURITIES AND EXCHANGE COMMISSION v. ROBERT B. ANACONE,
U.S. District Court for the District of Columbia, Civil Action Number 00400
(February 29, 2000) (D.D.C.)
SEC SETTLES CORPORATE REVENUE RECOGNITION AND ILLEGAL STOCK TRADING CASE
The Securities and Exchange Commission today filed a Complaint alleging that during fiscal 1993 and 1994 Robert B. Anacone, then executive vice president of sales and marketing of PerSeptive Biosystems, Inc., engaged in practices that materially inflated the revenue and income PerSeptive reported in its publicly disseminated financial statements. Those practices, the Complaint alleges, included his having caused certain customer orders for PerSeptive products to be entered into the company's books and records where the sales were contingent upon future events, and where there was no binding commitment to purchase. The Complaint further alleges that Anacone did not adequately disclose such material sales conditions to PerSeptive's internal accountants. According to the Complaint, Anacone also avoided substantial losses by selling PerSeptive stock while in possession of material nonpublic information concerning this ongoing fraudulent scheme.
Anacone, without admitting or denying the allegations in the Complaint, simultaneously consented to the entry of a permanent injunction against violations of the antifraud and corporate books and records provisions, and agreed to pay $94,605 in disgorgement, $60,948.46 in prejudgment interest thereon, and a $60,000 civil penalty.
Specifically, the Complaint alleges the following:
Improper Corporate Sales Recognition
- Anacone participated in PerSeptive's budgeting process by presenting sales projections to PerSeptive's chief executive and chief financial officers, monitored his sales force's progress toward its budgeted sales targets and, near the end of fiscal quarters in what was colloquially known as the "war room," discussed the status of individual prospective sales and the sales needed to achieve PerSeptive's targets.
- In order to persuade prospective customers to place product orders needed to achieve PerSeptive's budgeted sales projections, Anacone repeatedly agreed to special terms knowing, or reckless in not knowing, that those terms precluded revenue recognition under generally accepted accounting principles.
- The terms included allowing customers to "evaluate" PerSeptive products with no purchase obligation, and granting them the right to return the products solely at their discretion. Anacone also entered into arrangements which included other material conditions such as funding contingencies. At times Anacone communicated conditional terms to customers orally and in side letters. On other occasions he expressly authorized his sales staff to issue side letters offering customers contingent terms such as evaluation periods and unilateral rights of return.
- Anacone, directly or indirectly, caused false and misleading documentation to be provided to PerSeptive's internal accountants that did not disclose the material conditions associated with customer orders for PerSeptive's products. Anacone knew or was reckless in not knowing that such conditions were not known to PerSeptive's accounting personnel.
- By at least November 1993, Anacone knew or was reckless in not knowing that materially contingent orders placed in PerSeptive's order entry system would be improperly recognized as revenue. Notwithstanding this, to obtain customer orders Anacone continued to approve special terms including material contingencies, knowingly or recklessly causing such orders to be entered into PerSeptive's books and records through at least the close of the June 30, 1994 fiscal quarter.
Fraud In Connection With Securities Trading
- In February 1994 Anacone sold 10,000 shares of PerSeptive stock in a market in which PerSeptive's stock was artificially inflated by his scheme to overstate the company's revenue and income.
- In December 1994 PerSeptive restated its financial results for fiscal 1993 and for the first three quarters of fiscal 1994. As a result of the restatement, PerSeptive's fiscal 1993 revenues declined by more than 19 percent; and its revenues for the first three quarters of fiscal 1994 declined by 18.8 percent, 24.8 percent, and 32.7 percent, respectively. Following PerSeptive's December 26, 1994 public announcement of the restatement of its financial results, its stock price declined by more than 35 percent.
- By selling PerSeptive stock while in possession of material nonpublic information (prior to any public disclosure of PerSeptive's true financial condition), Anacone breached the fiduciary duty he owed to PerSeptive and its shareholders by virtue of his position as a senior PerSeptive officer, fraudulently avoiding losses of $94,605.
The Complaint alleges that Anacone violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. Simultaneously with the filing of the Complaint, without admitting or denying its allegations, Anacone consented to the entry of a Final Judgment enjoining him from future violations of those provisions; and requiring him to disgorge the losses avoided by his securities trading which, together with prejudgment interest, total $155,553.46, and to pay a civil penalty of $60,000.