On April 1, 2003, the Commission filed a settled accounting case in the United States District Court for the District of Columbia against Thomas & Betts Corporation ("T&B"), a publicly-traded electrical components manufacturer headquartered in Memphis, Tennessee, and three individuals. The individual defendants are Neil W. Parker, former President of T&B's Electrical Components Group, Robin B. Gregersen, former Vice President and Controller of T&B's Electrical Components Group, and Robert C. Calhoun, former Vice President of T&B's National Accounts Sales Group and current Vice President of T&B's Distributor Marketing. The Commission charged Parker and Gregersen with violating the anti-fraud provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the Commission's rules thereunder, and charged all of the defendants with violating, or aiding and abetting violations of, the reporting, books-and-records, and internal controls provisions of the Exchange Act and the Commission's rules thereunder.
The Commission's complaint alleges that, from late 1998 through early 2000, officers at T&B's Electrical Components Group - specifically defendants Parker, Gregersen, and Calhoun - knowingly engaged in conduct that circumvented T&B's internal controls and falsified T&B's books, records, and accounts. As a result, the complaint further alleges, T&B materially overstated its pre-tax income in earnings releases and in public filings with the Commission. In March 2001, according to the complaint, T&B restated its 1999 fiscal year financial statements, including the interim quarters, to materially reduce its previously reported pre-tax income.
In particular, the Commission's complaint alleges that:
- In 1998, T&B's Electrical Components Group began a new sales initiative involving large transactions called "Power Buys," which all featured some combination of the following characteristics: abnormally large volume of product; abnormally large price discounts; extended payment terms; negotiated near fiscal quarter-end; shipment of product to third-party warehouses, storage of product at these warehouses, and insurance for product stored at these warehouses, all at T&B's expense; T&B's customer having an unqualified right to return product or, in some instances, automatic reversion of unsold inventory to T&B on a date certain; and assistance by T&B in bringing about resale of the product by the customer to the end user. According to the complaint, T&B's accounting for these Power Buys did not comply with generally accepted accounting principles ("GAAP") because, in several instances during its 1999 fiscal year, T&B immediately recognized revenue from Power Buys that were subject to side agreements that excused the buyer from paying for product until it was resold to end users. The complaint alleges that Parker, Gregersen and Calhoun approved or were aware of many of these side agreements.
- After unsuccessfully attempting to convince Power Buy customers to pay for products not yet resold to end users, Parker and Gregersen directed Calhoun to solicit "prepayments" from customers which were, in essence, loans to T&B to be applied toward the customers' future purchases of product outside the Power Buy program. According to the complaint, Parker, Gregersen, and Calhoun knew that T&B agreed to pay these customers interest on the prepayments, and Parker and Gregersen failed to take appropriate action to prevent T&B from improperly allocating the prepayments to reduce outstanding accounts receivable balances on prior Power Buys.
- On at least two occasions during 1999, T&B improperly recorded revenue on Power Buys after Parker and Calhoun knowingly shipped Power Buy products to a third-party warehouse that they knew were not reflective of the customer's actual orders.
- During February 2000, while T&B's outside auditors were auditing the company's financial statements for the fiscal year ended January 2, 2000, representatives of T&B made materially false and misleading statements to the auditors about certain Power Buy transactions. According to the complaint, Parker, Gregersen and Calhoun were aware that incorrect information was being provided to the auditors but made no effort to correct it, and Gregersen prepared a memorandum for T&B's auditors that contained inaccurate information.
- During the relevant period, T&B failed to devise and maintain adequate internal accounting controls, and failed to make and keep accurate books, records, and accounts.
- In March 2001, T&B restated its financial statements for the first and second quarters of its 2000 fiscal year, for the interim quarters of its 1999 fiscal year, and for its 1996 through 1999 fiscal years. The total amount of the restatements for all periods reduced T&B's previously reported pre-tax income by $114.1 million, of which approximately $18.9 million resulted from the reversal of Power Buys that had originally been recorded as sales during T&B's 1999 fiscal year.
Without admitting or denying the Commission's allegations, all of the defendants consented to the entry of final judgments against them. T&B agreed to be enjoined from violating 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.
Parker agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations 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. Parker also agreed to be prohibited from acting as an officer or director of any public company, to pay a total of $62,384, comprised of $9,741 in disgorgement, $2,643 in prejudgment interest, and a $50,000 civil penalty.
Gregersen agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2. Gregersen also agreed to pay a total of $31,535, comprised of $13,769 in disgorgement, $2,766 in prejudgment interest, and a $15,000 civil penalty, the amount of which was based, in part, on Gregersen's demonstrated inability to pay more than that.
Calhoun agreed to be enjoined from violating Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2. Calhoun also agreed to pay a $25,000 civil penalty.
