Risk & Compliance

SEC Sues Five for Financial Fraud

Former Daisytek executives are charged with playing games with rebates to boost earnings.
Stephen TaubAugust 1, 2006

The Securities and Exchange Commission has filed financial fraud charges against five former executives of office products and computer supply distributor Daisytek International.

The SEC alleges that the former officers—James Powell, CEO and president; Ralph Mitchell, CFO; Mark Corjay, controller; E. Suzanne Garrett, executive vice president-merchandising division, and Michael Scannell, executive vice president and president of Daisytek’s U.S. Operations—conducted a scheme to meet earnings estimates by materially overstating Daisytek’s earnings from 2000 through the first half of 2002.

In its complaint, the SEC alleges that from 2000 through the first half of 2002, the five individuals improperly recorded as revenue various rebates associated with inventory ordered for the sole purpose of meeting Daisytek’s earnings targets, and recorded fraudulent receivables. In the process, Daisytek failed to comply with Generally Accepted Accounting Principles, according to the regulator.

Three of the five individuals—Powell, Corjay, and Garrett—agreed to settle without admitting or denying the Commission’s allegations.

Powell has consented to a permanent injunction and a 10-year officer and director bar, and has agreed to pay disgorgement of $829,759, plus prejudgment interest of $148,595. In exchange, the Commission will waive the total amount and won’t seek a civil penalty, based on his sworn financial statement.

Similarly, Corjay has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $311,175, plus prejudgment interest of $51,822, provided that the commission waive all but $100,000 of that total amount of the fraud and does not seek a civil penalty, based on his sworn financial statement.

Corjay, a licensed CPA, has also agreed to an SEC order suspending him from practicing or appearing before the Commission as an accountant, with the right to apply for reinstatement after five years.

Garrett has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $107,500 plus prejudgment interest, and a $40,000 civil penalty.