U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18910 / September 29, 2004
Accounting and Auditing Enforcement Release No. 2115 / September 29, 2004
Securities and Exchange Commission v. Marcy Wilson Roke, Case No. 04 CV 1966 H (POR) (S.D. Cal.)
SEC CHARGES FORMER DIRECTOR OF ADVERTISING AT ADVANCED MARKETING SERVICES, INC. WITH SCHEMES TO INFLATE ADVERTISING EARNINGS
The United States Securities and Exchange Commission today announced the filing of civil charges against Marcy Wilson Roke for her participation in schemes to improperly inflate the earnings of Advanced Marketing Services, Inc. (AMS). AMS is a San Diego-based wholesaler of general interest books that provides a variety of other services, including promotional and advertising services. Roke, age 37, of San Diego, California, was director of advertising at AMS from 1999 through 2004.
The Commission's complaint, filed today in U.S. District Court in San Diego, alleges that Roke participated in schemes to improperly manipulate AMS's earnings that were carried out primarily through AMS's advertising department. The complaint alleges that the fraudulent schemes caused AMS to overstate its pre-tax earnings by about 9% in fiscal year 2001, 10% in fiscal year 2002, and 19% in fiscal year 2003.
The complaint alleges that AMS fraudulently overstated its earnings through two schemes. The first scheme involved the production of fewer advertising vehicles than AMS had contracted with publishers to provide. One advertising service that AMS provides to publishers is to print and mail advertising vehicles - such as inserts, catalogs, and post-cards - for books the publishers produce. Through Roke's involvement, AMS improperly recognized revenue on the full quantity of advertising vehicles it had agreed to distribute, because it did not in fact produce the agreed-upon number of vehicles. As a result, AMS recorded revenue for these services contrary to generally accepted accounting principles, and thereby improperly overstated its earnings.
The complaint further alleges that Roke participated in a scheme to increase AMS's income by improperly reversing certain accrued liabilities relating to retail cooperative advertising. AMS recorded liabilities for credits that it expected retailers to take for certain advertising and promotional services that the retailers provided. When the retailers did not take the credits due to them, instead of contacting the retailers and reconciling amounts, Roke directed advertising and sales personnel to hide the discrepancies from the retailers, so that AMS could improperly reverse the liability and thereby decrease expenses and increase its income.
Roke profited from her participation in the fraudulent schemes from her receipt of annual bonuses and sales of AMS stock, which totaled more than $200,000.
The complaint alleges that Roke violated the antifraud provisions (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder) and the books and records provisions of the federal securities laws (Section 13(b)(5) of the Exchange Act) as well as aiding and abetting violations of and violating the record-keeping provisions of the federal securities laws (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder). The SEC seeks a permanent injunction, disgorgement of all ill-gotten gains plus prejudgment interest, and a civil penalty against Roke.
The Commission acknowledges the cooperation and assistance of the United States Attorney's Office for the Southern District of California.
The Commission's investigation is continuing.