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U.S. Securities and Exchange Commission


Litigation Release No. 18469 / November 18, 2003

Accounting and Auditing Enforcement
Release No. 1918 / November 18, 2003

Securities and Exchange Commission v. Bernard F. Bradstreet United States District Court for the District of Massachusetts, Civ. No. 95-11647)


The Securities and Exchange Commission announced today that, on October 9, 2003, a Massachusetts federal court entered a final judgment, by consent, against David R. Earl, of Westford, Massachusetts, in connection with a financial fraud. The final judgment enjoined Earl from future violations of the antifraud, books and records and internal accounting controls provisions of the federal securities laws. The judgment also bars Earl from acting as an officer or director of any public company. At the time of the conduct at issue, Earl was the vice president for operations of Kurzweil Applied Intelligence, Inc., a software company formerly headquartered in Waltham, Massachusetts.

The Commission's complaint, filed on July 26, 1995, alleged that, between January 1992 and May 1994, Earl and others engaged in a fraudulent revenue recognition scheme during the time leading up to and following the company's initial public offering of stock in 1993. The scheme resulted in improper revenue recognition from over eighty transactions. The complaint alleged that Earl knew and assisted in the practice of using side letters, among other methods, to improperly recognize revenue on contingent sales, and implemented a system whereby product was shipped to an off-site warehouse on sales that had not closed by the end of a quarter. The complaint further alleged that Earl instructed an employee to provide false information to auditors and concealed his knowledge of the scheme when questioned about it by auditors, and that he sought to conceal the scheme from Kurzweil's outside auditors by transferring inventory hidden at the off-site warehouse in rented trucks to other, more remote, locations. As a result of the conduct alleged in the complaint, Kurzweil's Commission filings overstated revenue by more than $8 million during 1993 and 1994, and the company reported a profit when in fact it was losing nearly $8 million.

The final judgment permanently enjoined Earl from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (antifraud provisions) and Exchange Act Section 13(b)(5) and Rules 13b2-1 and 13b2-2 (prohibiting falsification of issuer books and records, evasion of internal accounting controls and making false statements to accountants). The final judgment also barred Earl from acting as an officer or director of any publicly- traded company. Earl was the last defendant in this case. Three other individual defendants previously settled the Commission's action. The Commission also previously instituted related settled administrative orders against Kurzweil and three of its accounting department employees. For further information, see Litigation Release Nos. 14571 (July 26, 1995), 14992 (July 30, 1996), 15069 (September 25, 1996) and 15187 (December 16, 1996) and Exchange Act Release Nos. 36021 and 36022 (July 25, 1995).


Modified: 11/05/2003