SEC Sues Donnkenny, Inc. and Four Former Senior Executives and Employees for Financial Fraud; U.S. Attorney Announces Guilty Pleas

The Securities and
Exchange Commission today charged Donnkenny, Inc. - a
manufacturer and marketer of women’s sportswear and other
apparel - and four former senior executives and employees with
perpetrating a financial fraud from early 1994 until the Fall
of 1996.  The individuals were also charged with illegal
insider trading.

     Also today, the U.S. Attorney for the Eastern District of
New York announced that Donnkenny’s former chairman and chief
executive officer, Richard F. Rubin, today pleaded guilty to
conspiracy to commit securities fraud, a felony.  The U.S.
Attorney also announced that Donnkenny’s former top-two
financial officers - Edward T. Creevy and Ronald H.
Hollandsworth - each have similarly pled guilty to conspiracy
to commit securities fraud.

     Richard H. Walker, Director of the SEC’s Division of
Enforcement, said, “The integrity of our markets rests upon
the accuracy of financial reporting.  Ensuring accurate
financial reporting by holding individuals responsible for
outright fraud and unacceptable earnings management is a top
priority of the Commission.  Today’s cases demonstrate the
resolve of both the Commission and the criminal authorities to
stamp out financial fraud and protect investors.”

     The SEC charges, filed in District Court for the District
of Columbia, allege that:  Richard Rubin fraudulently managed
the company’s reported revenues and earnings beginning in at
least early 1994 and continuing until at least August 1996.
Rubin directed a scheme whereby the company improperly
reported revenue both on sales before they occurred as well as
on bogus transactions.  His purpose was to create the illusion
that each quarter the company’s financial results met or
exceeded projections and analysts’ expectations.  As a result
of the scheme, Donnkenny publicly disseminated materially
false and misleading financial statements and other
disclosures through press releases and filings with the SEC.
Assisting Rubin were three company employees:  Donnkenny’s
former chief financial officer, Edward Creevy, its former
controller, Ronald Hollandsworth, and former assistant
controller, Kymberlee W. Kulis.  Together these four
individuals caused Donnkenny to improperly recognize revenue
by:

          *    holding open quarters to book out-of-period shipments;
          *    anticipating future sales by pulling forward orders
            without shipping the goods to customers;
          *    recording fictitious sales from non-existent contract
             work and through false journal entries; and
          *    hiding inventory at an idle Donnkenny facility and a
            third-party warehouse.

     The SEC further charges that Rubin, Creevy,
Hollandsworth, and Kulis each engaged in illegal insider
trading by selling Donnkenny securities knowing that the
company’s publicly reported financial results were materially
misstated.  The individuals’ alleged illegal securities
transactions included:

          *    Rubin sold 780,000 shares and caused his wife to sell
            77,000 shares of Donnkenny stock, from which the Rubins
            received proceeds of approximately $17.9 million.  In
            addition, in July 1996, immediately before the fraud was
            detected, Rubin entered into an options transaction known as a
            “no-cost collar” from which he received approximately $3.6
            million after the fraud was revealed and the price of
            Donnkenny’s stock plummeted;
          *    Creevy and Hollandsworth each sold 14,000 shares of
            Donnkenny stock, receiving profits of $148,325 and $139,250,
            respectively; and
          *    Kulis sold 899 shares of Donnkenny stock receiving
            profits and avoiding losses of $10,599.

Relief Sought:   The Commission seeks to permanently enjoin
            Rubin, Creevy, Hollandsworth, and Kulis from
            violating or aiding and abetting violations of the
            antifraud, periodic reporting, books and records,
            and internal accounting control provisions of the
            federal securities laws.

            The Commission also asked the court to permanently
            bar Rubin, Creevy, and Hollandsworth from serving
            as officers or directors of public companies.

            Finally, in addition to seeking civil money
            penalties for insider trading and for their
            respective roles in the financial fraud, the
            Commission also requested that the court order the
            defendants to disgorge their ill-gotten gains from
            their insider trading, and with respect to Rubin,
            that he disgorge the bonuses he received from the
            company while directing the fraud.

Settlements:    Simultaneously with the filing of the
            complaint the following settlements were agreed
            to:

           Kymberlee W. Kulis:  Without admitting or denying
            the complaint’s allegations, Kulis agreed not to
            violate the federal securities laws in the future
            and agreed to pay more than $34,000, representing
            disgorgement of her trading profits and losses
            avoided and civil money penalties.

          Donnkenny, Inc.:  Without admitting or denying the
            Commission’s findings, Donnkenny consented to a
            Commission order directing the company to cease
            and desist from committing or causing any
            violations or future violations of the antifraud,
            periodic reporting, books and records, and
            internal accounting control provisions of the
            federal securities laws.

     The Commission thanks the U.S. Attorney’s Office for its
cooperation in this matter.

     Details of the Commission’s actions are available at:
www.sec.gov.

     For further information contact:

     William R. Baker, III, (202) 942-4570
     Associate Director, Division of Enforcement

     Kathleen M. Hamm, (202) 942-4637
     Assistant Director, Division of Enforcement