U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19403 / September 29, 2005
Accounting and Auditing Enforcement
Release No. 2323 / September 29, 2005
Securities and Exchange Commission v. Del Global Technologies Corp., Inc.,et al., 04 CV 4092 (S.D.N.Y.)
Former Del Global Board Member David Michael Agrees to Settlement with SEC
The Securities and Exchange Commission announced today that it has reached a settlement of its pending case against David Michael, former director and chair of the audit committee of Del Global Technologies Corp., Inc. ("Del"), a company based in Valhalla, New York. The Commission's complaint, filed June 1, 2004 in the U.S. District Court for the Southern District of New York, alleged as to Michael that he signed a false confirmation letter in connection with the 2000 year-end audit of Del Global's financial statements. The Commission's complaint also alleged that certain former senior officers and/or directors of Del participated in a multi-year financial fraud at Del between 1997 and 2000. Michael consented to the entry of a final judgment against him without admitting or denying the allegations in the Commission's complaint.
On September 19, 2005, the Honorable Colleen McMahon, U.S. District Judge for the Southern District of New York, entered a final judgment permanently enjoining Michael from violating the books and records, internal controls, and lying-to-auditors provisions of the federal securities laws (Securities Exchange Act of 1934 ("Exchange Act") Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2). The final judgment also permanently bars Michael, pursuant to Exchange Act Section 21(d)(5), from serving as an officer or director of a public company, and requires him to pay a $20,000 civil money penalty.
The Commission's complaint alleged, as to Michael, that near the end of Del's 2000 fiscal year, Del's CFO attempted to improperly capitalize certain general expenses to an unrelated Del acquisition of a subsidiary. According to the Commission's complaint, when Del's auditors requested back-up documentation concerning these expenses as part of its final audit fieldwork, Del's CFO, with Michael's assistance, generated a confirmation letter falsely stating that Michael, a CPA, had performed accounting work directly related to the acquisition. The complaint further alleged that Michael, who knew that the confirmation letter was false and suspected that Del's CFO might be engaged in wrongdoing, signed and returned the false confirmation letter. Within days of Michael submitting the confirmation letter, according to the Commission's complaint, Del's outside auditors discovered the fraudulent accounting scheme and an internal investigation was initiated.
In a prior action unrelated to Michael's conduct at Del Global, on April 14, 1999, the Commission permanently suspended Michael (and his accounting firm) from appearing or practicing before the Commission as an accountant. See Securities Exchange Act of 1934 Release No. 41284; Accounting and Auditing Enforcement Release No. 1125.
Michael was the last defendant in the Commission's litigation arising out of the Del financial fraud. The Commission originally sued, in addition to Michael, Del, Leonard Trugman (the former CEO), Michael H. Taber (the former CFO), David Engel (the former Executive Vice President and CFO), and Seymour Rubin (a former director and senior executive) for their participation in the fraud. Del, Taber, Engel and Rubin settled with the Commission in June 2004 when the case was filed. Trugman settled with the Commission in August 2005. For additional information, see Litigation Release No. 18732 (June 1, 2004) and Litigation Release No. 19360 (September 6, 2005).