The Securities and Exchange Commission has settled financial fraud charges with a former top finance executive and the former chief executive at a now-defunct eyeglass frame distributor, which allegedly overstated its assets by as much as 35 percent as a result of the scheme.
The regulator accused Barry Budilov, former president, director, and chief executive officer of Ambassador Eyewear Group, and Raymond Green, Ambassador’s former treasurer and principal financial accounting officer of falsifying Ambassador’s books and records. Among the allegedly faked items were income, expense, accounts receivable, retained earnings, and inventory. The SEC also charged the two with lying to Ambassador’s auditors.
In September 2002, the commission filed a complaint charging that from at least 1997 through at least December 1998, Budilov and Green schemed to artificially inflate Ambassador’s assets, income, and retained earnings. As a result of the scheme, the SEC charged, Ambassador falsely claimed in regulatory filings and press releases that it was profitable—even though it was squarely in the loss column.
The commission also charged that, after others began suspecting the fraud, Budilov tried to hide their involvement by destroying evidence, causing others to destroy evidence, and persuading others to accept responsibility for the fraud. As part of the settlement, the two men consented to the agreement without admitting or denying the SEC’s charges. Both men agreed to be barred from serving as an officer or director of a publicly-traded company.
As of 1996, according to the SEC’s complaint, Ambassador was experiencing big cash shortfalls that threatened its ability to survive. To deal with the shortfalls, Budilov obtained an asset-based collateralized line of credit. Under the LOC’s terms, the Philadelphia-based company could borrow up to a percentage of the total value of Ambassador’s accounts receivable that were less than 90 days old, as well as its current inventory value.
The LOC’s lender gauged the amount that Ambassador could borrow at any given time based on a “borrower’s certificate.” The certificates were at first created, signed, and submitted daily by Budilov, according to the complaint. Later, that was done by Green under Budilov’s tutelage.
Despite the cash infusions spawned by the borrowing, Ambassador continued to encounter cash shortfalls. Budilov thus began to falsify the borrowing certificates to show higher accounts receivable and inventory values, enabling Ambassador to borrow more money, according to the regulator.
Budilov started delegating the preparation of inflated borrower’s certificates to Green In late 1996, showing the then-finance-exec how to overstate the assets reported to the lender, the SEC charged. Under Budilov’s aegis, Green prepared and signed false borrowing certificates, overstating the company’s accounts receivable, sales, and inventory in a document that he submitted to the lender daily, according to the complaint.
Budilov and Green had been indicted earlier for similar conduct. On November 26, 2004, Green pleaded guilty to two counts of an indictment and on January 30, 2006, he was sentenced to five years of probation including eight months of home custody, and ordered to pay restitution of nearly $17.5 million.
On July 12, 2005, Budilov pleaded guilty to four counts of the indictment, and on January 13, 2006, he was sentenced to a term of 27 months of imprisonment, five years of probation, and also ordered to pay restitution of nearly $17.5 million. The restitution orders against Budilov and Greene was reduced to a judgment against both of them.