A federal judge ruled that a former Tyco International finance chief must face civil fraud charges brought by the Securities & Exchange Commission, according to the Associated Press.
U.S. District Judge Robert Sweet in Manhattan denied a motion by Richard Power to dismiss the SEC’s complaint.
In December 2006, the SEC brought charges against Power, once the CFO of Tyco, and Edward Federman, former CFO of the Tyco Electronics unit. At that time charges were settled with a third person, Richard Heger, who was the principal financial officer of, and oversaw accounting and financial reporting at, Tyco’s Fire & Security Services division.
The SEC alleged that Power and Federman designed and implemented fraudulent accounting practices at Tyco, thereby violating the antifraud and record-keeping provisions of federal securities laws, as well as aided and abetted Tyco’s violations.
The Commission alleged that Power and Federman inflated Tyco’s operating income by hundreds of millions of dollars through the use of a sham transaction. They further inflated Tyco’s operating income by means of fraudulent acquisition accounting, including the pre-acquisition reduction of asset valuations and overstatement of liabilities in connection with several of Tyco’s most significant business acquisitions, the SEC claimed.
Federman agreed last May to pay $2.65 million to settle the SEC charges.
The SEC said Heger approved division financial results that he knew, or was reckless in not knowing, had been inflated by the sham transaction and improper acquisition accounting and that had been enhanced or smoothed by the improper use of reserves. He settled for $450,000.