U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18608 / March 5, 2004
Accounting and Auditing Enforcement
Release No. 1968 / March 5, 2004
Securities and Exchange Commission v. Richard Rambahal, et al., (U.S.D.C. W.D. MO., Case Number 04-3086-CV-S-JCE, U.S.D.C. W.D. MO., filed March 4, 2004)
The Securities and Exchange Commission announced that on March 4, 2004 it filed a Complaint in the United States District Court for the Western District of Missouri alleging that four former employees of DT Industries, Inc. (DTI), engaged in separate fraudulent schemes at three of DTI's subsidiaries to artificially inflate DTI's financial position. At the time of the conduct alleged in the Commission's Complaint, DTI was headquartered in Springfield, Missouri. The Commission named in its Complaint Richard Rambahal, the controller of DTI subsidiary Kalish, Inc., Paul H. Kofton and Joseph J. Barry, the controller and cost accountant of DTI subsidiary Sencorp Systems, Inc. and Michael Lesniewski, the general manager and controller of DTI subsidiary Assembly Machines, Inc. (Defendants). Specifically, the Commission's Complaint alleged that between 1996 and 2002, the Defendants knowingly or recklessly failed to properly recognize costs associated with various projects in order to reach their subsidiary's projected earnings targets set by DTI. The Commission's Complaint also alleged that the Defendants attempted to conceal their schemes in various ways, including, hiding unrecorded production costs in various balance sheet accounts that DTI consolidated into its financial statements and by creating false supporting documentation. According to the Commission's Complaint, the Defendants' improper entries on their respective subsidiary's books and records resulted in an understatement of the cost of sales and thereby caused material overstatements of DTI's consolidated net income and material understatements of DTI's consolidated net losses in various quarterly and annual reports that DTI filed with the Commission between 1997 and 2002. According to the Commission's Complaint, the overstatements of DTI's consolidated net income ranged from 1% to 532%. The Complaint seeks a permanent injunction enjoining Rambahal, Kofton, J. Barry and Lesniewski from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder and for aiding and abetting DTI's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The Complaint further seeks orders of disgorgement, plus prejudgment interest, from Rambahal, Kofton and Lesniewski and the imposition of civil monetary penalties against Kofton and Lesniewski. J. Barry, without admitting or denying the allegations of the Complaint, consented to the imposition of an order permanently enjoining him from the violations alleged in the Commission's Complaint. Also, in a related action, the Commission on March 4, 2004 issued an order instituting cease-and-desist proceedings requiring DTI to cease and desist from committing or causing any violations and any future violations of certain reporting, record keeping, and internal control provisions of the federal securities laws.