Risk Management

SEC Sues Former Controller

''Lack of adequate internal controls,'' adds the SEC, also prevented California Amplifier from discovering that their controller was not a CPA, as ...
Stephen TaubMay 5, 2004

The Securities and Exchange Commission has charged Barry Richard Kusatzky, the former controller of California Amplifier Inc., with accounting fraud and insider trading.

The SEC alleged that from November 27, 1999, through November 25, 2000, Kusatzky caused the Camarillo, California-based maker of satellite-system components to materially overstate income and equity in its quarterly and annual financial statements by hiding $7.8 million in company expenses. He accomplished this fraud by fabricating financial statements, falsifying the company’s books and records, and presenting false records to the company’s auditors.

According to the complaint, in January 2000 — before the fraud was discovered — Kusatzky illegally profited from these actions by exercising all of his vested options and selling all his 15,000 shares of California Amplifier stock “while in possession of material, non-public information that the company’s earnings were materially overstated.”

The transactions enabled him to avoid losses of more than $350,000.

The complaint also alleged that Kusatzky knew the company’s earnings for the quarter ended November 27, 1999, were materially overstated because he alone was responsible for overstating them.

Kusatzky confessed to the fraud the day before the company’s annual audit was to begin in March 2001. In a handwritten note to company officials, Kusatzky admitted to hiding expenses and to making California Amplifier’s “P+L look better,” added the SEC’s complaint. Kusatzky resigned on March 30, 2001, reported the L.A. Daily News.

The SEC also issued a settled against California Amplifier, finding that the company’s “lack of adequate internal controls allowed Kusatzky to commit fraud, caused the failure of the company to discover that Kusatzky was not a CPA as he had represented, resulted in books and records that failed to accurately reflect the company’s transactions, caused numerous other accounting errors, and caused California Amplifier to file materially false and misleading periodic reports,” added the commission.

The company has restated earnings for 2000 and 2001, according to the Associated Press, and filed revised reports with the SEC. The AP added that company officials weren’t immediately available for comment, and that Kusatzky could not immediately be reached.

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