Litigation Release No. 18194 / June 19, 2003
Accounting and Auditing Enforcement Release No. 1803 / June 19, 2003
Securities and Exchange Commission v. Robert Korkuc, CV 03 3016 (WEXLER) (E.D.N.Y.)
The Securities and Exchange Commission announced today that it filed a civil injunctive action in federal court in Brooklyn, New York charging Robert Korkuc ("Korkuc"), former Chief Accounting Officer of Symbol Technologies, Inc. ("Symbol"), with engaging in a vast fraudulent scheme to manipulate Symbol's reported financial results. Based in Holtsville, New York, Symbol is a leading manufacturer of bar code scanners and related information technology whose stock is publicly traded on the New York Stock Exchange. The complaint alleges that Korkuc and others rigged the financial results that Symbol reported in press releases and periodic reports filed with the Commission by manipulating millions of dollars in revenue, net income and other measures of financial performance from 1998 through 2002. Korkuc, age 40, was Director of Corporate Accounting at Symbol before becoming Chief Accounting Officer in July 2000. Symbol announced his resignation in March 2003.
The Commission's complaint alleges that:
Among other fraudulent accounting practices, Korkuc and others manipulated reserves and made other improper adjustments to Symbol's raw financial data to conform the reported results to market expectations. Korkuc made or oversaw dozens of fraudulent entries on Symbol's accounting records that boosted net income and otherwise enhanced the results by tens of millions of dollars. Throughout the relevant period, Korkuc and others prepared schedules, known within Symbol as "Tango sheets," that compared each quarter's raw consolidated results to management's forecasts. The Tango sheets described adjustments to reserves and other items that eliminated shortfalls and otherwise rigged the reported results. Korkuc distributed the Tango sheets to members of senior management and then adjusted the raw results according to their instructions. These adjustments grossly violated generally accepted accounting principles.
When making these improper "topside" adjustments, Korkuc knew that the raw results were already inflated because of fraudulent revenue recognition practices and similar misconduct. Korkuc played a role in some of these other fraudulent practices, including paying resellers to secure their assistance in Symbol's channel stuffing schemes and recognizing sales revenue before the product was even shipped. Korkuc also played a role in efforts to perpetuate and conceal the fraud. He was involved in obtaining phony "bill and hold" letters to disguise premature revenue recognition, reclassifying past due trade receivables into undisclosed notes receivable to hide the adverse effects of channel stuffing on cash collection, and making fictitious general ledger entries to obscure earlier Tango sheet adjustments. After the Commission began its investigation, Korkuc and others took additional steps to conceal important elements of the fraud from Symbol's outside counsel and the government.
As a result of these and other fraudulent practices, Symbol materially overstated its revenue and net income in press releases and periodic reports filed with the Commission and disseminated to the public from 1998 through 2002. Symbol is in the process of restating these financial results. According to Symbol's public disclosures, the restatement will include changes in reserves and reductions in revenue and net income during the period that Korkuc was involved in the fraud.
Symbol's disclosures about the need for a restatement arise from an internal investigation into the company's financial reporting practices that began in the spring of 2002 at the request of the Commission's staff.
In the complaint, the Commission seeks a permanent injunction enjoining Korkuc from: (i) committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5; (ii) falsifying corporate books and records, circumventing internal controls, making false and misleading statements to accountants, and engaging in other conduct in violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2; and (iii) aiding and abetting Symbol's violations of corporate reporting, recordkeeping and internal control provisions of the Exchange Act (Sections 13(a) and 13(b)(2) and Rules 12b-20, 13a-1 and 13a-13). The Commission also seeks an order: (i) requiring Korkuc to disgorge, and pay prejudgment interest on, his ill-gotten gains; (ii) imposing civil money penalties; and (iii) barring Korkuc from acting as an officer or director of a publicly traded company.
This is the second enforcement action the Commission has brought as a result of its investigation into Symbol's financial reporting. On March 25, 2003, the Commission brought a civil action against Robert Asti, a former sales finance executive at Symbol, alleging that Asti committed securities fraud and other violations. Securities and Exchange Commission v. Robert Asti, 03 Civ. 1417 (LDW)(E.D.N.Y.)(March 25, 2003)(Litigation Release No. 18050).
The United States Attorney's Office for the Eastern District of New York has announced that Korkuc is scheduled to plead guilty today to criminal charges based on conduct alleged in the Commission's complaint. The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the U.S. Postal Inspection Service in this matter.
