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The SEC accuses a former finance chief and her former coworkers of misreporting the company's gas inventory.
Stephen Taub, CFO.com | US
August 9, 2007
The Securities and Exchange Commission has filed civil charges against three former Nicor Inc. executives, alleging they were involved in a financial fraud scheme from 1999 to 2002.
The commission alleges that in 1999, the three executives helped devise a way the Chicago-area natural gas distributor could profit by accessing its low-cost last-in, first-out (LIFO) layers of gas inventory. The officers failed to disclose material information regarding the inventory in the company's regulatory filings and were "engaged in or approved improper transactions," according to the SEC.
The complaint was filed Thursday at a U.S. District Court in Illinois against former chairman, CEO, and president Thomas Fisher, former CFO and executive vice president Kathleen Halloran, and former treasurer George Behrens. The commission is seeking disgorgement, civil penalties, and officer and director bars.
Halloran's attorney, Ann Tighe of Cotsirilos, Tighe & Streicker, said she was disappointed in the SEC's allegations and believes she will be exonerated. "Ms. Halloran always acted properly, in good faith, and in what she believed were the best interests of Nicor, its shareholders, and the public," she said.
"The allegations in the SEC's complaint are just that — 'allegations' — and I look forward to demonstrating in court that I did not violate the securities laws in any way whatsoever," said Fisher, who worked at Nicor for 38 years, in a prepared statement supplied to CFO.com from his attorney. Similarly, David Stetler, the attorney for Behrens, said he will be fighting the charges in court. "We think they are just flat wrong," he told CFO.com.
The SEC claims that the former executives improperly changed Nicor's gas inventory levels to manipulate earnings and increase revenue under a performance-based utility rate plan. In addition, the three individuals are accused of materially understating Nicor's expenses during the first and second quarters of 2001 by improperly bundling a weather-insurance contract with an agreement to supply gas to an insurance provider at below-market prices. They allegedly improperly charged losses realized from the supply agreement to their utility customers. "These improper transactions enabled Nicor to understate its expenses and to manipulate its earnings to achieve its earnings targets," the commission said.
As a result of the alleged scheme, Nicor materially overstated its reported income for the years ending 2000 and 2001, the SEC claims.
The SEC's complaint goes on to say that the former officers failed to make disclosures required by generally accepted accounting principles about the effects of LIFO inventory liquidations on Nicor's reported income. The company also allegedly failed to disclose in either the Management's Discussion & Analysis section of its 2000 and 2001 financial statements that it had recorded material increases to income resulting from the liquidation of its LIFO inventory. Those regulatory filings also did not report that continued liquidation of Nicor's low-cost inventory was unsustainable, the SEC says.
Earlier this year, Jeffrey Metz, a former assistant vice president and controller, settled similar charges by the SEC. For its part, Nicor agreed to pay a $10 million penalty without admitting or denying the allegations.