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Jury Issues Verdict to the SEC, Finds CEO Liable for Deceptive Accounting Schemes
Securities and Exchange Commission v. John P. Miller
Civil Action No. 1:04-cv-1655-AJB, U.S. District Court for the Northern District of Georgia, 09/05/2008
Holding
The Securities and Exchange Commission ("SEC") has announced that on September 5, 2008, a jury in the U.S. District Court for the Northern District of Georgia issued a verdict to SEC on securities fraud and other charges against John P. Miller, the former Chief Executive Officer, President, and Chairman of the Board of Master Graphics, Inc., a publicly traded printing company based in Memphis, that is now defunct. Specifically, the jury found that Miller violated: (1) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5); and (2) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1). Additionally, the jury found that Miller aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act. Given these jury findings, the district court will schedule a subsequent hearing to decide what remedies, if any to impose against defendant.
Detailed Summary
On June 8, 2004, the SEC filed a complaint in the district court for the Northern District of Georgia against Miller. In particular, the complaint alleged that, in the spring of 1999, Miller devised and implemented a scheme to fraudulently overstate the company’s net income to meet analysts’ expectations. Pursuant to the plan, the company fraudulently reclassified rent and salary expenses that Master Graphics had already paid to its division presidents in the first quarter to assets on the company’s balance sheet, thus reducing expenses and increasing income.
According to the complaint, this scheme fraudulently overstated Master Graphics’ net income by 628%, 46% and 10% in the first, second and third quarter financial statements, respectively, that the company filed with the SEC in 1999. The complaint further stated that Miller violated the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5) and the books and records and internal controls provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1). The complaint also alleged that Miller aided and abetted Master Graphics’ violations of the reporting provisions of the Exchange Act (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder). The complaint sought an injunction, disgorgement plus prejudgment interest, civil penalties and an officer and director bar.
This complaint was the second lawsuit that the SEC filed in connection with Master Graphics’ accounting issue. See SEC Litigation Release No. 18733 (June 2, 2004). This previous case had basically the same allegations as the instant complaint.
Specifically, the SEC filed this first complaint in the United States District Court for the Western District of Tennessee against Lance Turner Fair and Paul Melvin Henson, Jr. Fair is the former Chief Financial Officer and Henson the former Chief Accounting Officer of Master Graphics. The complaint alleged that, in the spring of 1999, Fair, Henson and Master Graphics’ Chief Executive Officer implemented a scheme to fraudulently overstate the company’s net income to meet analysts’ expectations. Pursuant to the plan, the company fraudulently reclassified rent and salary expenses that Master Graphics had already paid to its division presidents in the first quarter to assets on the company’s balance sheet, thus reducing expenses and increasing income. See http://www.sec.gov/litigation/litreleases/lr18733.htm.
View a PDF of the verdict.Service
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