U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18733A / July 14, 2004
Accounting and Auditing Enforcement
Release No. 2028A / July 14, 2004
SEC v. Paul Melvin Henson, Jr. and Lance Turner Fair, Case No. 04-2394 DP (W.D. Tenn.).
SECURITES AND EXCHANGE COMMISSION SUES FORMER OFFICERS OF MEMPHIS, TENNESSEE COMPANY FOR ACCOUNTING FRAUD
On May 27, 2004, the Securities and Exchange Commission filed a complaint in the United States District Court for the Western District of Tennessee against Lance Turner Fair and Paul Melvin Henson, Jr. Fair is the former Chief Financial Officer and Henson the former Chief Accounting Officer of Master Graphics, Inc., a Tennessee-based printing company that was publicly traded on the NASDAQ National Market System, but is now defunct. The complaint alleges that, in the spring of 1999, Fair, Henson and Master Graphics' Chief Executive Officer implemented a scheme to fraudulently overstate the company's net income to meet analysts' expectations. Pursuant to the plan, the company fraudulently reclassified rent and salary expenses that Master Graphics had already paid to its division presidents in the first quarter to assets on the company's balance sheet, thus reducing expenses and increasing income. According to the complaint, this scheme fraudulently overstated Master Graphics' net income by 628%, 46% and 10% in the first, second and third quarter financial statements, respectively, that the company filed with the Commission in 1999.
The complaint alleges that Henson and Fair violated the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5), as well as the books and records and internal controls provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1). Without admitting or denying the allegations of the complaint, Henson and Fair have consented to a final judgment that imposes a $25,000 civil penalty against each defendant.
Fair and Henson previously consented to cease and desist orders finding that, based on the same conduct discussed herein, they violated not only the provisions cited above, but also caused Master Graphics to violate the reporting and books and records provisions of the Exchange Act (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13). Fair and Henson neither admitted nor denied the findings in the cease-and-desist orders. See In the Matter of Paul Melvin Henson, Jr., Securities Act Rel. No. 8425 (May 19, 2004), In the Matter of Lance Turner Fair, Securities Act Rel. No. 8424 (May 19, 2004)