U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19401 / September 29, 2005
Accounting and Auditing Enforcement
Release No. 2321 / September 29, 2005
Securities and Exchange Commission v. Michael J. Lawler, 05 Civ. 1233 (N.D.N.Y.) (DRH)
SEC Charges Former Executive with Accounting Fraud at The Penn Traffic Company
The Securities and Exchange Commission ("Commission") today filed a complaint in the Northern District of New York, charging Michael J. Lawler ("Lawler"), the former Director of Manufacturing at Penny Curtiss, the bakery manufacturing subsidiary of The Penn Traffic Company ("Penn Traffic"), with orchestrating and carrying out a scheme to fraudulently manipulate Penn Traffic's books and records.
The Complaint alleges that Lawler, as the highest-ranking Penny Curtiss employee, made, and directed Penny Curtiss' employees to make, improper accounting adjustments to Penny Curtiss' books and records so that Penny Curtiss would meet or come close to meeting internal sales targets set forth by management. In the most significant of the falsified adjustments, Lawler made and directed his subordinates to make fraudulent entries on Penny Curtiss' general ledger that overstated inventory. Penny Curtiss' general ledger was incorporated in Penn Traffic's books and records and, as a result, its public financial statements. By reducing the costs of goods sold, these false entries had the effect of overstating Penn Traffic's Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA), as well as its net income. As a result of Lawler's willful misconduct, Penn Traffic overstated more than $11 million of income and issued restated financial results for a three year period.
The Commission alleges that, as a result of the foregoing, Lawler violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Penn Traffic's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
Lawler has agreed to a resolution of this matter, subject to the Court's approval. Without admitting or denying the allegations in the Commission's complaint, Lawler has consented to the entry of a permanent injunction against future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
The Commission acknowledges the assistance and cooperation of the United State's Attorney's Office for the Northern District of New York and the Federal Bureau of Investigation in this matter.
The Commission's investigation is continuing.