Accounting & Tax

SEC Charges Former Fischer Execs

The commission alleges that the former CEO and two former CFOs improperly boosted revenue by $45 million over a three-year period.
Stephen TaubJune 9, 2005

The Securities and Exchange Commission accused six former executives of Fischer Imaging Corp., a manufacturer of medical diagnostic equipment, of inflating revenue over the course of several years, according to the Rocky Mountain News.

The SEC’s complaint alleged that former chief executive officer Louis Rivelli, former chief financial officer Rodney Johnson, and former chief financial officer Stephen Burke improperly boosted revenue by $45 million, or 38 percent, over 11 quarters in 2001, 2002, and 2003, according to the newspaper. A July 2003 restatement wiped out two years of earnings, the paper added.

Last November, the SEC issued a cease-and-desist order against the company, finding that Fischer materially misstated its revenue, inventory, net income, and gross profit in regulatory filings and press releases from the beginning of 2000 through the third quarter of 2002.

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The order found that Fischer improperly recognized revenue when it shipped equipment to third-party warehouses, where the equipment remained insured and controlled by Fischer, and in some cases, remained subject to outstanding contingencies such as cancellation rights. Specifically, the SEC cited $23 million that was improperly booked as sales to customers even though Fischer still owned the equipment. The commission also found that Fischer materially overstated its inventory account by improperly valuing excess and obsolete inventory, overvaluing returned malfunctioning parts, and double-counting certain raw materials.

The government accused a total of six individuals, including senior sales executives Craig Stevenson and Robert Hoffman, of conspiring to make it appear the sales were legitimate to meet projected revenue figures, according to the report.

The commission also singled out Rivelli and Johnson for “actively touting” Fischer as a profitable company in news releases and earnings calls with analysts, according to the paper. In addition, the SEC named as a defendant Teresa Ayers, who joined Fischer’s board of directors in April 2002 to become chair of its audit committee. She left the board in October 2003.

The SEC is seeking to have Rivelli, Johnson, Burke, and Ayers be barred permanently from serving as an officer or director of any public company, according to the report. The commission also seeks unstated monetary penalties and disgorgement from all six individuals.