U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19286 / June 27, 2005
Accounting and Auditing
Release No. 2267/ June 27, 2005
SEC v. Oliver Hilsenrath and David S. Klarman, Civil Action No. C-03-3252 (N.D. Cal.).
FORMER GENERAL COUNSEL OF U.S. WIRELESS HELD LIABLE FOR $3.9 MILLION AND BARRED FROM SERVING AS AN OFFICER OR DIRECTOR OF A PUBLIC COMPANY
In a financial fraud case initiated by the U.S. Securities and Exchange Commission in July 2003, a federal court has ordered that David S. Klarman, former general counsel of U.S. Wireless Corporation, is liable for approximately $3.9 million in disgorgement of ill-gotten gains and prejudgment interest. The Court's order also prohibits Klarman from serving as an officer or director of a public company for ten years and permanently enjoins him from violating antifraud and other provisions of the federal securities laws.
Klarman consented to the order without admitting or denying the substantive allegations in the Commission's complaint. Klarman has similarly consented to a separate administrative order suspending him from appearing or practicing before the Commission as an attorney.
Klarman, age 40, of New York, was the general counsel of U.S. Wireless, a now-bankrupt company based in San Ramon, California. The Commission's complaint alleged that Klarman and Oliver Hilsenrath, the former CEO of U.S. Wireless, embezzled assets by having U.S. Wireless transfer stock and cash to several offshore entities that they secretly owned and controlled. The Commission further alleged that as part of the scheme, Klarman and Hilsenrath caused U.S. Wireless to file false and misleading periodic reports with the Commission, falsified entries in the company's books and records, and made false statements to the company's auditors.
The Court's order deems Klarman liable for approximately $3.9 million, representing $3.2 million in disgorgement of ill-gotten gains plus $700,000 in prejudgment interest on the disgorgement amount. The order also enjoins Klarman from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder. The order further provides that Klarman is prohibited for ten years from serving as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. A separate hearing will be held to determine whether civil money penalties will be assessed against Klarman.
Klarman has entered a plea of guilty in a related criminal action brought by the U.S. Attorney's Office for the Northern District of California. The order in the Commission's case provides that for amounts Klarman pays toward his criminal sentence, he will receive a credit toward his liability for disgorgement, prejudgment interest, and civil penalties.
The Commission's litigation against Hilsenrath is ongoing.
For more formation, see Lit. Release 18275, Aug. 6, 2003.