The US Securities and Exchange Commission (SEC) has charged the former chief executive officer of a Chicago-area engine manufacturing company and two former senior sales executives for their roles in an accounting fraud that allegedly overstated the publicly-traded company’s revenues by almost $25m.
According to the complaint, filed in federal court in Chicago, Gary Winemaster, Power Solutions International Inc.’s former CEO, and two former senior sales executives, Craig Davis and James Needham, caused Power Solutions to fraudulently record revenue for purported sales of products that were not complete, that the customer had not agreed to accept, for which the price was falsely inflated, and from improper “bill and hold” arrangements. The SEC further alleges that the defendants misled and concealed key information from Power Solutions’ internal accounting personnel and external auditor.
“Investors depend on company executives to provide accurate, reliable information about their company’s financial condition,” said Kathryn Pyszka, Associate Regional Director of the SEC’s Chicago Regional Office. “As we allege, these executives deprived investors of truthful information about Power Solutions’ financial health by causing the company to fraudulently record revenue to meet revenue targets and projections.”
The SEC’s complaint charges the defendants with violating various antifraud, books and records, reporting, and internal controls provisions of the federal securities laws as well as with aiding and abetting violations. The complaint seeks permanent injunctions and penalties against all defendants, disgorgement and prejudgment interest against Needham, an officer-and-director bar against Winemaster, and a clawback of incentive-related compensation paid to Winemaster during the alleged fraud.
The US Attorney’s Office for the Northern District of Illinois filed criminal charges against the defendants for related misconduct.