U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18823 / August 9, 2004
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 2077 / August 9, 2004
United States Securities and Exchange Commission v. Scott C. Anixter, et al., No. 02-C-3235 (N.D. Ill.) (Marovich, J.).
Scott C. Anixter, Former Chairman of the Board of Anicom, Inc., Charged With Fraud
On July 29, 2004, the Securities and Exchange Commission filed an amended complaint in the United States District Court for the Northern District of Illinois that added Scott C. Anixter, the former Chairman of the Board of Anicom, Inc., as a defendant to its lawsuit against six top executives and other employees of the now-defunct company. Anixter, age 55, is a resident of Glencoe, Illinois.
The Commission's amended complaint alleges that from January 1, 1998 through March 30, 2000, Anixter and the other defendants carried out a massive financial fraud at Anicom in which they falsely reported millions of dollars of non-existent sales, including sales to a fictitious customer, and used other fraudulent techniques to inflate Anicom's net income by more than $20 million. To conceal the fraud, certain of the defendants lied to Anicom's outside auditors, lied to the Audit Committee of Anicom's Board of Directors in an internal investigation, and withheld information from the Commission's staff. When aspects of the fraud were eventually revealed to the public, Anicom's shareholders lost more than $80 million.
The Commission's amended complaint alleges that the fraud had two distinct aspects. First, Anixter and his co-defendants, President and Chief Executive Officer Carl E. Putnam, Vice President of Sales Daryl T. Spinell, Chief Operating Officer John P. Figurelli, and Billing Manager Renee L. LeVault, improperly recognized numerous sales that inflated reported revenues and net profits. Additionally, Chief Financial Officer Donald C. Welchko, Figurelli, LeVault, and defendant Vice President of Accounting Ronald M. Bandyk, C.P.A., with Anixter and Putnam's knowledge, caused Anicom in 1999 to, among other things, improperly recognize more than $11.7 million in sales to a fictitious customer called SCL Integration Corp. to minimize the effect on income of writing off earlier improper sales.
Second, Anixter and Welchko improperly manipulated Anicom's expenses to bring the company's financial results in line with, or at least closer to, analysts' expectations. To that end, Welchko and Bandyk engaged in fraud by improperly charging certain expenses to a reserve account and a restructuring charge, unjustifiably inflating purchase rebates accrued, and accelerating the recognition of sales between reporting periods. As a result of the defendants' misconduct, Anicom filed with the Commission at least nine materially false and misleading periodic reports on Forms 10-Q and 10-K reports between January 1, 1998 and March 30, 2000 that, among other things, overstated the company's revenues by more than $38 million.
The Commission's amended complaint alleges that the defendants' conduct violated the antifraud, periodic reporting, record keeping, internal controls, and lying to the auditors provisions of the federal securities laws. The Commission requests that the court issue a final judgment of permanent injunction and other relief, enjoining certain of the defendants from violating Sections 17(a)(1) and (3) of the Securities Act of 1933, Sections 10(b), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 promulgated thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder. The Commission seeks civil monetary penalties from each of the defendants, and disgorgement of ill-gotten gains from Anixter, Putnam, Welchko, Figurelli, Bandyk, and Spinell. The Commission also seeks an order permanently barring Anixter, Putnam, Welchko, Figurelli, Spinell, and Bandyk from acting as officers and directors of any public company.
The Commission filed its lawsuit on May 6, 2002. Additional information regarding the Commission's lawsuit can be found in Litigation Release No. 17504, May 6, 2002.