The Securities and Exchange Commission has settled financial fraud charges with Chesapeake Corp. — a Richmond, Virginia-based supplier of packaging materials — and four former finance executives.
The individuals are former chief financial officer William T. Tolley; former corporate controller Carlos A. Gonzalez; William D. Wiseman, former chief financial officer of Chesapeake’s onetime subsidiary Chesapeake Display & Packaging (CD&P); and Douglas J. Rex, the former controller of CD&P’s largest business unit, U.S. Display.
The commission alleged that the executives and the company engaged in a financial fraud resulting in Chesapeake’s materially misstating its earnings for the first and second quarters of 2000 and its anticipated earnings for the third quarter.
Specifically, the complaint alleged that in an effort to bolster CD&P’s “flagging financial performance” and forestall a possible sale of the subsidiary, Wiseman and Rex improperly recorded revenue and delayed recording write-offs. As a result, the company overstated net income for the first quarter of 2000 and improperly smoothed the earnings impact of the delayed write-offs over the second and third quarters.
Chesapeake sold the CD&P unit in 2001, reported the Richmond Times-Dispatch.
The SEC asserted that Tolley and Gonzalez knew, or were reckless in not knowing, of certain of the improper accounting practices prior to Chesapeake’s filing of its first- and second-quarter financial statements, which Tolley signed.
The complaint also alleged that Rex posted two unsupported and fictitious journal entries, which Wiseman approved, that artificially increased U.S. Display’s third-quarter 2000 earnings by $7.3 million in order to meet the earnings forecast previously provided to Chesapeake’s senior management.
A Chesapeake spokesman told the Times-Dispatch that Wiseman and Rex were fired in November 2000 “based on the findings of our internal investigation.” Tolley left Chesapeake voluntarily in April 2002 and Gonzalez left in September 2001, the paper added.
Without admitting or denying the allegations, the company as well as all the individuals except Rex agreed to settle by consenting to the entry of final judgments against them. Chesapeake, which was not fined, agreed to an injunction against future violations of federal securities laws.
Wiseman and Rex consented to be permanently barred from serving as officers or directors of any public company. In addition, Tolley and Wiseman agreed to pay civil penalties of $50,000 each, and Gonzalez agreed to a civil penalty of $45,000. Rex deferred the decision on the amount of his civil penalty to the judgment of the court.