SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17667 / August 8, 2002
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1613 / August 8, 2002
SECURITIES AND EXCHANGE COMMISSION V. RICHARD F. RUBIN, ET AL., Civil Action No. 99-239 (D.D.C.)
FORMER CFO AND CONTROLLER OF
DONNKENNY SETTLE SEC FRAUD CHARGES
On July 31, 2002, the Commission obtained final judgments against two defendants in its pending financial fraud case against former executives of Donnkenny, Inc., a women's apparel manufacturer headquartered in New York City. The United States District Court for the District of Columbia entered the final judgments against Edward T. Creevy, Donnkenny's former chief financial officer, and Ronald H. Hollandsworth, Donnkenny's former controller. The judgments permanently bar both Creevy and Hollandsworth from serving as officers or directors of any public company, and permanently enjoin them from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; falsifying corporate books and records or circumventing internal accounting controls in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; misleading accountants in violation of Exchange Act Rule 13b2-2; and aiding and abetting violations of the books-and-records, internal controls, and periodic reporting provisions of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13. Creevy and Hollandsworth consented to entry of the final judgments without admitting or denying the Commission's allegations against them.
Creevy and Hollandsworth previously pled guilty to criminal charges of conspiring to commit securities fraud, and each was sentenced, among other things, to serve five years probation and to pay $250,000 in restitution. U.S. v. Edward T. Creevy, No. CR 99-13 (E.D.N.Y.) and U.S. v. Ronald Hollandsworth, No. CR 98-1055 (E.D.N.Y.). Based on the restitution orders, the final judgments in the Commission's case do not order Creevy or Hollandsworth to pay disgorgement of their illicit gains. Moreover, based on the criminal sanctions imposed against Creevy, including a $250,000 fine, and on Hollandsworth's sworn statement of financial disclosure, the final judgments in the Commission's case do not impose civil penalties against Creevy or Hollandsworth.
The Commission's complaint in the case, which was filed in February 1999 and amended in September 2001, charged Creevy, Hollandsworth, and two other former Donnkenny executives with engaging in a wide-ranging financial fraud from at least early 1994 through August 1996, and with illegally selling Donnkenny stock before the fraud was disclosed to the public. The complaint alleges that these individuals caused Donnkenny to improperly recognize revenue by: holding open quarters to book out-of-period shipments; recording revenue on orders without shipping the goods to customers; recording fictitious sales from non-existent contract work and through false journal entries; and hiding inventory purportedly sold in fictitious sales from the detection of the auditors during the company's annual physical inventory count. See Litigation Release No. 16051 (Feb. 2, 1999).
One of the defendants, former Donnkenny assistant controller Kymberlee W. Kulis, settled with the Commission upon filing of the complaint. The case against the remaining defendant, former Donnkenny chief executive officer Richard F. Rubin, and against several relief defendants, is still pending. Like Creevy and Hollandsworth, defendant Rubin has already pled guilty to criminal charges of conspiring to commit securities fraud. U.S. v. Richard Rubin, No. CR 99-84 (E.D.N.Y.). Among other things, he was sentenced to imprisonment of a year and a day and ordered to pay $49.5 million in restitution.
In a related proceeding, the Commission today issued an administrative order pursuant to Rule 102(e) of its Rules of Practice that denies Creevy, who was an unlicensed certified public accountant during the relevant period, the privilege of appearing or practicing before the Commission as an accountant. Creevy consented to the order without admitting or denying the Commission's findings. See In the Matter of Edward T. Creevy, Admin. Proc. 3-10859 (August 8, 2002.)