U.S. Securities and Exchange Commission
Accounting and Auditing Enforcement Release No. 1963 / February 25, 2004
Litigation Release No. 18592 / February 25, 2004
SECURITIES AND EXCHANGE COMMISSION v. ClearOne Communications, Inc et al.
Docket No. 2:03CV00055DAK (USDC, D.Ut.)
On February 20, 2004 the Honorable Dale A. Kimball, U.S. District Court, District of Utah ordered permanent injunctions from future violations of the antifraud, reporting and issuer books and records requirements of the federal securities laws, against Frances M. Flood ("Flood"), former Chairman, CEO and President of ClearOne Communications, Inc and Susie Strohm ("Strohm") former CFO of ClearOne Communications, Inc. Both Flood and Strohm consented to the entry of final judgments without admitting or denying any of the allegations of the complaint.
The Commission's complaint was filed on January 15, 2003 and alleged violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a) and 13(b) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder. The complaint alleged that since the quarter and fiscal year ended June 30, 2001, ClearOne Communications, Inc.'s management engaged in a program of inflating the company's revenues and net income by engaging in improper revenue recognition. This course of conduct, covering two annual reporting periods and four separate quarterly reporting periods, was effected primarily through a program of channel stuffing conceived and directed by Frances M. Flood, then ClearOne's Chairman, CEO and President. In addition, while this conduct was ongoing, ClearOne closed a $25.5 million private placement of common stock.
The order against Flood prohibits violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, violations of Section 17(a) of the Securities Act and aiding and abetting violations of Section 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1, 13a-13, 13b2-1 and 12b-20 promulgated thereunder. The order against Flood also provides for disgorgement in the amount of $71,000.00 along with prejudgment interest of $2,881.93, a civil penalty in the amount of $71,000.00, and prohibits Flood from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
The order against Strohm prohibits violations of Section 17(a)(2) and (3) of the Securities Act and aiding and abetting violations of Section 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 promulgated thereunder. The order against Strohm also provides for disgorgement in the amount of $25,000.00 together with prejudgment interest in the amount of $1,014.75 and a civil penalty in the amount of $25,00.00.