Risk Management

SEC Sues Irish Pair in Zomax Accounting Scheme

Complaint says they made false entries for sales accrual, spare parts, and holiday pay at a unit in Ireland, leading to Sarbox violations.
Stephen TaubJune 19, 2007

The former financial controller of the Zomax Ireland unit of former U.S. public issuer Zomax Inc., along with another ex-officer, were charged by the Securities and Exchange Commission with making false journal entries to overstate the sales accrual account, capitalizing spare machine parts that should have been expensed, and understating accruals for employee holiday pay.

The SEC complaint alleged that Clem Hannon, the former financial controller, and former general manager Tom Shanahan directed one of Zomax Ireland’s financial accountants to hide the company’s declining performance at Zomax Ireland by “manipulating certain accounting entries and financial records.” The complaint also said that Shanahan and Hannon submitted to Zomax false financial information for their unit, including false site certifications that were required for Zomax to fulfill its obligations under the Sarbanes-Oxley Act.

As a result of their scheme, Plymouth, Minn.-based Zomax misstated its financial statements for the first three quarters of 2004, the SEC charged, adding that the fraudulent accounting at Zomax Ireland had a material effect on Zomax’s consolidated quarterly financial statements during the first three quarters of 2004. Zomax later restated its financial statements for the periods.

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Headquartered in Plymouth, Minn. and founded in 1996, Zomax, Inc. manufactured CDs and DVDs and provided software and related services to computer makers. Its subsidiary, Zomax Ireland, was an Irish limited liability company that served as a customer contact center and printing and packaging manager. In October 2006, the parent company was acquired by a private-equity fund and later merged with another subsidiary fund.

The complaint sought injunctive relief against Shanahan and Hannon, who are Irish residents, and sought to bar them from future posts as officers or directors.