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The former Ferro Corp. employee had falsified accounting entries, resulting in a $5.7 million overstatement for the company.
Sarah Johnson, CFO.com | US
September 14, 2007
A controller who served time in prison for securities fraud has settled Securities and Exchange Commission allegations that he falsified financial records to inflate his former employer's operating income by $5.7 million.
Brian Haylor, who worked as a division controller at Ferro Corp. until three years ago, has not admitted or denied the SEC's accusations. He has consented to the commission's demand that he be permanently enjoined from violating certain provisions of the Securities and Exchange Act of 1934. His attorney could not immediately be reached.
Haylor has already been punished for his actions during his tenure at the chemical maker: in 2005 he pleaded guilty to one count of securities fraud in the U.S. District Court for the Northern District of Ohio and was sentenced to four months in prison and eight months of home confinement. He was also given two years of probation.
According to the SEC's complaint, Haylor recorded false entries in Ferro's books from March 2003 to June 2004. His actions affected several accounts, including temporary accounts receivable, inventory, consignments, and unrecorded liabilities. Ferro subsequently overstated its operating income by $5 million in 2003 and $700,000 in the first quarter of 2004.
The SEC's complaint says Haylor often made false entries in temporary accounts receivable during the first three days of the month. During those days, the company's accounting system allowed entries to be made manually to adjust for the previous month's numbers. Haylor later gave Ferro's independent auditors at least one fake document that he had put together to hide what he had done, the SEC claims.
Haylor's conduct came to an end when Ferro hired a new director of corporate accounting, according to the SEC. That's when the company found unusual balances in its polymer-additives business unit, where Haylor worked. The director tracked the balances over two months found a large balance in temporary accounts receivable, and questioned Haylor's supervisor. The day after Haylor was asked to put together a reconciliation report to explain this problem, he didn't report to work and never returned to Ferro, the SEC says.
Three months after Haylor pleaded guilty, Ferro restated its financial results partly to make up for Haylor's actions, the SEC says. The restatement reduced Ferro's operating income from $24.2 million to $12.6 million in 2003, and from $19.3 million to $14 million for the first quarter of 2004.
At the time, Ferro said an internal investigation had uncovered problems in the accounting entries of its polymer-additives business unit. Officials said the personnel who were responsible were put on administrative leave or had resigned.