UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16692 / SEPTEMBER 7, 2000
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1299
SECURITIES AND EXCHANGE COMMISSION V. ROBERT H. SUTTON, U. S. District Court for the Northern District of Illinois, Civil Action No. 99 C 6342 (N.D. Ill. September 27, 1999)
The Securities and Exchange Commission announced today that on May 18, 2000, the United States District Court for the Northern District of Illinois ordered the entry of a permanent injunction against Robert H. Sutton, thus settling the Commission's securities fraud action against Sutton.
Without admitting or denying the Commission's allegations, Sutton consented to the entry of the judgment, which permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder. Sutton also consented to the entry of the judgment that Sutton violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 promulgated thereunder by circumventing internal accounting controls and falsifying books, records and accounts. Sutton was ordered to pay a civil money penalty of $15,000.
The Complaint alleged that Sutton, at the time a plant controller for a unit of Material Sciences Corporation ("MSC"), a Delaware corporation based in Elk Grove Village, Illinois, violated the federal securities laws by making false entries in the company's inventory and accounts payable records. The Complaint alleges that, as a result of Sutton's false entries, MSC overstated by 29% the net earnings disclosed in its financial statements for the fiscal year ended February 29, 1996. The Complaint also alleges that the false entries caused MSC to overstate the net earnings disclosed on MSC's Forms 10-Q during fiscal years 1996 and 1997 by amounts ranging between 6.27% and more than 300%.
According to the Complaint, between March 1, 1995, and February 28, 1997, Sutton intentionally fabricated the inventory work in process and entered these values into the general ledger of MSC's Laminates and Composites unit. According to the Complaint, Sutton's fabrications falsely increased MSC's earnings by artificially inflating the book value of the unit's inventory on hand and understating the unit's cost of sales.
The Complaint also alleges that from March 1, 1996, to February 28, 1997, Sutton intentionally made false ledger entries for the Laminates and Composites unit's accounts payable. According to the Complaint, Sutton's improper entries falsely increased MSC's earnings by artificially deflating its liabilities.