Risk Management

Power Down: PowerCold, Execs Settle with SEC

Alleged revenue-recognition abuses lead to agreement between agency and the climate control company's CEO, its controller, and a former CFO.
Stephen TaubMarch 12, 2009

Climate-control systems maker PowerCold Corp. and three current or former executives — including two former CFOs — settled Securities and Exchange Commission charges that they engaged in fraudulent revenue recognition.

PowerCold, which makes heating, ventilating, and air conditioning systems, was named along with chairman and CEO Francis L. Simola, former finance chief Joseph C. Cahill, and controller and chief accounting officer Grayling R. Hofer, who also formerly was CFO. They were accused of materially overstating the company’s financial results from 2003 through the third quarter of 2005 by recognizing revenue from fictitious contracts, and inflating and prematurely recognizing revenue from actual contracts. They settled without admitting to or denying the allegations.

The SEC also alleged that Simola, Cahill, and Hofer participated in the scheme to misstate PowerCold’s revenue. To conceal the scheme, the three made materially false or misleading statements to PowerCold’s auditor, according to the allegations. The SEC said PowerCold, based in LaVemia, Tex., consented to a permanent injunction prohibiting violations of certain securities rules.

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Simola, Cahill, and Hofer consented to five-year officer-and-director bars. In addition, Simola agreed to pay a $75,000 civil penalty. The Commission said it determined not to seek civil penalties against PowerCold, Cahill, or Hofer based on their financial condition. Hofer also agreed to be barred from practicing or appearing before the Commission as an accountant. In addition, PowerCold consented to the entry of an order revoking the registration of its securities.  Simola has been PowerCold’s chairman, president, CEO and a director since 1993.

Cahill was PowerCold’s vice president of administration and finance from January 2002 to January2004, and its CFO, secretary, and a director from January 2004 to January 2006. Hofer has served as chief accounting officer, corporate controller, and treasurer since March 2002. He currently serves as vice president of operations. Hofer also was PowerCold’s CFO from January 2006 to November 2006.