U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16729 / September 27, 2000
Accounting and Auditing Enforcement Release No. 1324 / September 27, 2000
SECURITIES AND EXCHANGE COMMISSION v. MICHAEL L. HIEBERT
Civil Action No. SACV-00947 GLT(ANx)(C.D. Cal.)
On September 27, 2000, the Securities and Exchange Commission filed a complaint in federal court in Orange County, California alleging financial statement fraud against Michael L. Hiebert (Hiebert), the former Chief Financial Officer of Premier Laser Systems, Inc. (Premier), a now-bankrupt manufacturer of medical lasers and fiber optic devices based in Orange County, California.
The complaint alleges that Hiebert caused Premier to recognize $2.4 million in revenue improperly during the company's fiscal third quarter ended December 31, 1997, from the purported sale of lasers to Henry Schein, Inc. (Schein). The complaint alleges that Schein had not placed an order but had only entered into a non-binding letter of intent pursuant to which it agreed to market Premier's dental lasers.
The complaint alleges that Hiebert failed to review adequately documentation supporting the fictitious sale, even though the order was the largest Premier had ever received and resulted in the company's first-ever quarterly profit. Consequently, the complaint alleges that Premier's now-deceased Executive Vice President was able to perpetrate a fraudulent scheme involving the creation of a fictitious Customer Order Form and the shipment of 100 lasers to a warehouse. The complaint also alleges that Hiebert failed to recognize several red flags apparent on the face of the Customer Order Form. Hiebert also concluded without basis that Schein had agreed to purchase the lasers. Finally, Hiebert recklessly accepted at face value the Executive Vice President's assurances that installation of the lasers was proceeding and that payment would be received the following month. As a result, Premier overstated quarterly revenue by more than a third in its fiscal third quarter Form 10-Q.
The complaint also alleges that Hiebert tolerated internal control deficiencies that led to the improper recognition of the $2.4 million sale. Hiebert failed to adhere to written guidelines that required the company to obtain signed purchase orders from distributors before recognizing revenue from laser sales. Hiebert also failed to supervise his accounting staff adequately. Hiebert delegated day-to-day management of the department to a staff accountant, and did not require the accounting department staff to use Premier's procedures manual. Hiebert also failed to implement formal procedures for the department governing the collection of accounts receivable.
Hiebert agreed to settle this matter by consenting to a judgment, without admitting or denying the allegations in the Commission's complaint. The judgment permanently enjoins Hiebert from future violations of the antifraud provisions (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5), reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13), books and records provision (Section 13(b)(2)(A) of the Exchange Act), falsifying books and records provision (Rule 13b2-1), and internal control provision (Section 13(b)(2)(B) of the Exchange Act). The judgment also orders Hiebert to pay a civil penalty of $10,000.
In a related matter, Premier consented, without admitting or denying the Commission's findings (outlined above), to the entry of a cease-and-desist order prohibiting the company from violating or causing violations of the aforementioned antifraud, reporting, books-and-records and internal control provisions of the federal securities laws. See Rel. Nos. 33- 7902 . .