South Florida Arbitration & Litigation Lawyer Blog
Securities and Investment Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
January, 2012:
SECURITIES AND EXCHANGE COMMISSION v. ROBERT CHIU (A/K/A CHI HUNG CHIU), Civil Action No. CV-12-00200-PHX-JWS (JWS) (D. Ariz.) (Filed Jan. 30, 2012)
SECURITIES AND EXCHANGE COMMISSION v. JAMES LI (A/K/A CHING HUA LI), THOMAS CHOW (A/K/A MAN KIT CHOW), ROGER KAO (A/K/A CHAO CHUN KAO), CHRISTOPHER LIU (A/K/A CHI LEI LIU), AND WAYNE A. PRATT, Civil Action No. CV-11-1712-PHX-SRB (SRB) (D. Ariz.) (Filed Aug. 30, 2011)
RELATIONSHIP PARTNER AT ACCOUNTING FIRM CHARGED WITH FRAUD AND BARRED FOR FIVE YEARS; FORMER SYNTAX-BRILLIAN CORP. EXECUTIVE ORDERED TO PAY MORE THAN $48 MILLION FOR INSIDER TRADING AND FINANCIAL FRAUD
Recently,, the Securities and Exchange Commission filed settled charges against Robert Chiu for aiding and abetting the fraudulent revenue recognition scheme at Syntax-Brillian Corporation (“Syntax”), a developer of high-definition LCD televisions. In addition, on January 12, 2012, Judge Susan R. Bolton of the United States District Court for the District of Arizona entered a default judgment against Thomas Chow, formerly the Chief Procurement Officer and a Director of Syntax. The Court permanently enjoined Chow from future violations of the antifraud, reporting, books and records, internal controls, and misrepresentation to auditor provisions of the federal securities laws, and ordered him to pay disgorgement of $10,370,317.16, prejudgment interest of $2,567,483.64, an insider trading penalty of $30,849,951.48, and a civil penalty of $4,680,000.00 for his role in the financial fraud scheme. Chow was also permanently barred from serving as an officer or director of a publicly traded company.
As alleged in the SEC’s Complaint against Chow, from at least June 2006 through April 2008, Chow and other members of Syntax’s senior management engaged in a complex scheme to overstate Syntax’s revenues and earnings and artificially inflate its stock price. As a result, Syntax reported false and misleading financial statements beginning in the fiscal year ended June 30, 2006, through the fiscal first quarter ended September 30, 2007. The scheme included the creation of fictitious sales and shipping documents and coordinating the circular transfer of funds among and between Syntax, its primary manufacturer in Taiwan, and its purported distributor in Hong Kong.
In its Complaint against Chiu, the SEC alleged that he served as an audit and relationship partner for Syntax’s outside auditor. Specifically, the SEC alleged that Chiu instructed Syntax executives on how to create a backdated distribution agreement to assist them in improperly recognizing revenue in Syntax’s fourth quarter ended June 30, 2006. Additionally, the SEC alleged that after his firm was replaced as Syntax’s auditor, Chiu participated in an engagement for Syntax’s purported distributor, where he learned that it was treating the Syntax sales as agency sales. This treatment was in contrast to Syntax’s treatment of the same sales. Despite his knowledge, Chiu failed to object to his accounting firm’s issuance of multiple consents to the reissuance of its audit opinion to Syntax’s Form 10-K for fiscal year 2007.
Without admitting or denying the allegations in the SEC’s complaint, Chiu consented to the entry of a final judgment permanently enjoining him from aiding and abetting violations of Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder. Chiu also consented to the institution of settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice suspending him from appearing or practicing before the Commission as an accountant, with the right to reapply after five years.
The settlement with Chiu takes into account his substantial cooperation with the Commission’s investigation.
The Commission has previously obtained permanent injunctions against defendants James Li, Roger Kao, Christopher Liu, and Wayne Pratt, and collected total disgorgement of $88,000, prejudgment interest of $17,000, and civil penalties of $290,000. In addition, the Commission obtained officer and director bars against Li, Liu, and Pratt, as well as the entry of an administrative order suspending Pratt from appearing or practicing before the Commission as an accountant with the right to reapply after five years.