UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17504 / May 6, 2002
Accounting and Auditing Enforcement Release No. 1554 / May 6, 2002
SEC Sues Former Executives and Other Employees of Anicom, Inc. for Financial Fraud
Securities and Exchange Commission v. Carl E. Putnam, Donald C. Welchko, John P. Figurelli, Daryl T. Spinell, Ronald M. Bandyk, and Renee L. LeVault (United States District Court for the Northern District of Illinois No. 02C 3235).
On May 6, 2002, the Securities and Exchange Commission filed a civil enforcement action alleging that from January 1, 1998 through March 30, 2000 six Anicom, Inc. executives and other employees carried out a massive financial fraud at the now-bankrupt company. In the suit, filed in federal court in the Northern District of Illinois, the Commission alleged that during this period, the defendants falsely reported millions of dollars of non-existent sales, including sales to a fictitious customer, and used other fraudulent techniques to inflate Anicom's revenues by over $38 million and net income by over $20 million. To conceal the fraud, certain of the defendants lied to Anicom's outside auditors, lied to the Audit Committee of Anicom's Board of Directors in an internal investigation, and withheld information from the Commission's staff. When aspects of the fraud were eventually revealed to the public, Anicom's shareholders lost more than $80 million.
The Commission's complaint alleged that the fraud had two distinct aspects. First, President and Chief Executive Officer Carl E. Putnam, along with Vice President of Sales Daryl T. Spinell, Chief Operating Officer John P. Figurelli, and Billing Manager Renee L. LeVault improperly recognized numerous sales that inflated reported revenues and net profits. Additionally, Chief Financial Officer Donald C. Welchko, with assistance from Figurelli, LeVault, and Vice President of Accounting Ronald M. Bandyk, C.P.A., and with at least Putnam's knowledge, caused Anicom in 1999 to improperly recognize over $11.7 million in sales to a fictitious customer called SCL Integration in order to minimize the effect on income of writing off earlier improper sales. Second, Welchko and Bandyk engaged in fraud by entering journal entries that improperly charged certain expenses to an inadvertently created reserve account and a Restructuring Charge, unjustifiably inflated purchase rebates accrued, and accelerated the recognition of sales between reporting periods.
The Commission also alleged that in 1999 Putnam and Welchko misled two investigations into allegations of improper sales at Anicom. In October 1999, Putnam and Welchko directed an employee to lie about his knowledge of improper sales during an internal investigation into allegations of sales misconduct. At the time, Putnam told the employee that Anicom was doing the internal investigation just in case the SEC came calling. In December 1999, the Commission requested that Anicom voluntarily produce information related to sales credits issued in 1999. Welchko instructed an Anicom employee to compile the responsive data but to remove all sales credits relating to SCL Integration. As a result, Anicom produced the requested information to the Commission having removed all evidence of the fictitious customer.
The Commission's complaint named the following defendants:
Carl E. Putnam, age 52, resides in Naperville, Illinois. Putnam had overall responsibility for Anicom's sales. He became Anicom's President in 1993, a Director in 1994, and was made Chief Executive Officer in September 1999. Putnam signed Anicom's annual report, and participated in making public statements about that and other reports filed with the Commission. On July 18, 2000, the Board of Directors placed him on administrative leave. On September 11, 2000, he resigned all positions.
Donald C. Welchko, age 47, resides in Willow Springs, Illinois. Welchko had overall responsibility for Anicom's accounting and finance functions. In 1995, he became Anicom's Chief Financial Officer, and in 1998 was made a Director and an Audit Committee member. Welchko participated in preparing Anicom's annual and quarterly reports filed with the Commission. He also signed Anicom's annual and quarterly reports, and participated in making public statements about those reports. On July 18, 2000, the Board placed him on administrative leave. On September 11, 2000, he resigned all positions.
The complaint also names the following people as defendants. John P. Figurelli, 54, a resident of Libertyville, Illinois, was Anicom's Chief Operating Officer. Daryl T. Spinell, 38, a resident of Naperville, Illinois, was Anicom's Vice President of Sales. Ronald M. Bandyk, 37, a resident of LaGrange, Illinois, was Anicom's Vice President of Accounting. Renee L. LeVault, 33, a resident of Huntley, Illinois, managed Anicom's Billing Department.
Prior to its January 2001 bankruptcy, Anicom was a wire and cable distribution company that employed nearly 1,200 people nationwide and was based in Rosemont, Illinois.
The Commission Seeks Permanent Injunctions, Civil Monetary Penalties, Disgorgement of Ill-Gotten Gains, and Officer and Directors Bars
In its complaint, the Commission alleged that the defendants' conduct violated the antifraud, periodic reporting, record keeping, internal controls, and lying to the auditors provisions of the federal securities laws. Accordingly, the Commission requests that the court issue a final judgment of permanent injunction and other relief, enjoining them from violating Sections 17(a)(1) and (3) 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 promulgated thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder. The Commission seeks civil monetary penalties from each of the defendants, and disgorgement of ill-gotten gains from Putnam, Welchko, Figurelli, Bandyk, and Spinell. The Commission also seeks an order permanently barring Putnam, Welchko, Figurelli, Spinell, and Bandyk from acting as officers and directors of any public company.