United Rentals, Inc. to Pay $14 Million to Settle Financial Fraud Charges
FOR IMMEDIATE RELEASE
Washington, D.C., Sept. 8, 2008 — The Securities and Exchange Commission today charged one of the world's largest equipment rental companies, United Rentals, Inc. (URI), with engaging in fraudulent transactions to meet company earnings forecasts and analyst expectations. The SEC also charged the company with a broad range of other improper accounting practices.
Without admitting or denying the charges, URI has agreed to settle the SEC's enforcement action and pay a $14 million penalty, which the Commission intends to place in a Fair Fund for distribution to affected investors.
"The financial penalty and fraud injunction reflects the seriousness and sophistication of this fraudulent scheme," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "This enforcement action is consistent with the Commission's commitment to aggressively pursuing financial fraud wrongdoers."
Fredric D. Firestone, Associate Director in the SEC's Division of Enforcement, added, "The misconduct is particularly troubling because it was carried out by senior officers of the company, who devised sophisticated accounting transactions in order to meet Wall Street's earnings expectations."
According to the SEC's complaint, filed in the U.S. District Court for the District of Connecticut, URI engaged in a series of fraudulent transactions from late 2000 through 2002. The financial fraud was accomplished primarily through a series of interlocking three-party sale-leaseback transactions orchestrated by URI's then-Chief Financial Officer Michael Nolan and its then-Vice Chairman and Chief Acquisitions Officer John Milne. Nolan and Milne were previously charged by the SEC for individual wrongdoing.
The SEC alleges that in these transactions URI sold used equipment to a financing company and leased it back for a short period, and then arranged for a third party equipment manufacturer to agree to sell the equipment at the end of the lease period and guarantee the financing company against any losses incurred in the resale of the equipment. URI separately guaranteed the equipment manufacturer against any losses it might incur under the guarantee it had extended to the financing company.
The SEC's complaint also alleges that in another effort to improve its earnings, URI engaged in a series of fraudulent "trade packages" with suppliers. The company sold blocks of used equipment for amounts in excess of fair value, in exchange for certain undisclosed financial inducements offered to those suppliers.
In addition, the SEC alleges that from 1997 to 2000, during a period of enormous growth through acquisitions, URI engaged in other improper accounting practices involving its valuations of acquired assets, use of acquisition reserves, and accounting for customer relationships as well as improperly accounting for other items that overstated net income, including its estimation and recording of self-insurance reserves, its recognition of equipment rental revenues, and its income tax accounting.
In addition to the financial penalty, URI consented to be permanently enjoined from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws. The settlement is subject to court approval.
In determining to accept URI's settlement offer, the Commission considered URI's cooperation with the Commission and its staff in the investigation leading to this action, and the remedial actions it has taken.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation. The SEC's investigation continues.
# # #
For more information, contact:
Fredric D. Firestone
SEC's Division of Enforcement
Kenneth R. Lench
SEC's Division of Enforcement