U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18809 / July 29, 2004
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 2066 / July 29, 2004
Securities and Exchange Commission v. Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman, Case No. 04C4948 (N.D. Ill.).
The Securities and Exhange Commission (the "Commission") announced today that it filed a civil injunctive action in the United States District Court for the Northern District of Illinois against Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman, all of whom reside in the Chicago area. Each of these individuals is a former officer of DFG, L.L.C. ("DFG"), a Chicago-based company that was a subsidiary of a subsidiary of IBP, Inc. ("IBP"). At the time of the relevant conduct, IBP was a public company based in Dakota Dunes, South Dakota, and was one of the nation's largest producers of fresh beef and pork.
The Commission alleges that Zahn (DFG's former president), Sexauer (DFG's chief financial officer in 1999), and Berryman (DFG's controller in 1999 and chief financial officer in 2000) engaged in an array of accounting improprieties to inflate DFG's earnings. These misstatements caused IBP to materially misstate its own financial results for the fourth quarter of 1999 and the first three quarters of 2000. Specifically, the Commission alleges that Zahn, Sexauer, and Berryman directed that DFG not charge certain expense items in the period they were incurred, but instead improperly included these amounts in inventory, prepaid expense, and accounts receivable asset accounts to overstate DFG's earnings. The Commission alleges that each of the defendants was motivated by personal compensation tied to DFG's financial performance.
In its complaint, the Commission claims that, through these actions, each of the defendants violated Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and aided and abetted IBP's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. It further claims that Zahn and Berryman violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-13 thereunder. The Commission seeks a final judgment enjoining all of the defendants from future violations of the federal securities laws, ordering the defendants to disgorge ill-gotten gains, and imposing civil monetary penalties. The Commission also seeks an order barring Zahn and Berryman from serving as an officer or director of a public company.
Simultaneously with the filing of the complaint, Sexauer consented to the entry of an injunction against him prohibiting him from future violations of all of the provisions the Commission claims he violated. Sexauer also agreed to pay full disgorgement of his ill-gotten gains, prejudgment interest, and a civil penalty of $35,000.