U.S. SECURITIES & EXCHANGE COMISSION
Litigation Release No. 17686 / August 16, 2002
Accounting and Auditing Enforcement
Release No. 1616 / August 16, 2002
SEC Files Action Against Kevin J. Morrison, Former Executive of an HPSC, Inc. Subsidiary, and Mildred K. Miller in $5 Million Dollar Financial Fraud
Securities and Exchange Commission v. Kevin J. Morrison, et al. (United States District Court for the District of Massachusetts C.A. No. 02-11647-MLW)
The Securities and Exchange Commission ("Commission") announced today that it filed a civil fraud action against Kevin J. Morrison of West Hartford, Connecticut, the former executive vice president of American Commercial Financial Corporation ("ACFC"), a wholly-owned subsidiary of Boston-based HPSC, Inc. The Complaint alleges that Morrison caused HPSC to materially overstate the results of its operations when he improperly diverted more than $4.7 million of corporate assets to Mildred K. Miller, a purported ACFC factoring customer. The Complaint alleges that beginning in 1997 and continuing until May 22, 2002, Morrison concealed the diversion of funds to Miller by regularly providing fictitious financial reports regarding ACFC to ACFC's president, HPSC senior management, and HPSC's outside auditors. Miller, who is named as a relief defendant in the Complaint, is last known to have resided in Hartford, Connecticut.
According to the Commission's Complaint, Morrison took advantage of his complete control over ACFC's factoring business to divert more than $4.7 million from ACFC to Miller during a five-year period. The Complaint alleges that through purported factoring transactions directed by Morrison, ACFC received the right to collect accounts receivables owed to Miller. In exchange, Morrison authorized payments to Miller. The Complaint alleges, however, that invoices substantiating the accounts receivables sold by Miller to ACFC were either uncollectible, fictitious, or non-existent. The Complaint also alleges that Morrison was able to cover up the fraud because he was in charge of ACFC's accounting department, had responsibility for ACFC's books and records, and had authority to disperse funds from ACFC's accounts. Further, the Complaint alleges that fraudulent financial information provided by Morrison to HPSC was incorporated in the parent company's Forms 10-K and Forms 10-Q filed with the Commission for the periods ended December 31, 1997 through March 31, 2002 and, as a result, HPSC materially overstated its net income and earnings per share by between 4% and 112% during the affected filing periods.
The Commission's Complaint alleges that Morrison violated the antifraud, internal controls, and record-keeping provisions of the federal securities laws, including Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder. The Commission's Complaint seeks a permanent injunction against Morrison preventing future violations of the federal securities laws, disgorgement of any ill-gotten gains plus pre-judgment interest, civil penalties and an officer and director bar. In addition, the Complaint alleges that relief defendant Miller was unjustly enriched by more than $4.7 million and, as a result, the Commission seeks an order compelling Miller to relinquish any ill-gotten gains plus prejudgmentinterest.