Risk Management

Ex-AquaCell CFO Sentenced for IPO Scheme

Lying to auditors doesn't hold water for former water-filter finance chief.
Stephen TaubJanuary 29, 2007

The former chief financial officer of AquaCell Technologies Inc. was sentenced to six months home detention and ordered to pay a $30,000 fine for lying to auditors during the company’s initial public offering, according to the Associated Press.

In October, Gary Wolff pleaded guilty to one count of making false and misleading statements to auditors about an arrangement he and others made to lend $1.75 million in IPO proceeds to a potential investor, who would then use the proceeds to purchase Aquacell stock in its IPO, according to an announcement made at the time by Michael J. Garcia, the United States Attorney for the Southern District of New York. “Mr. Wolff candidly acknowledged his errors and wrongdoing and is looking forward to getting on with the rest of his life,” Peter Driscoll, Wolff’s lawyer, told the wire service.

Wolff was originally charged in February 2001. Based on the complaint, Wolff and other officers of Aquacell wired the $1.75 million to companies controlled by the investor—who was not named in the U.S. Attorney General’s press statement announcing Wolff’s sentence. The investor then wired the money back to Aquacell’s underwriters, who promptly wired the money to Aquacell to complete the investor’s purchase of over 350,000 shares of stock, accounting for nearly 30 percent of the IPO.

From about May through November of 2001, when Aquacell’s auditors asked Wolff a series of questions about the nature of the loans to the investor’s companies, Wolff never told them that the loans were made to enable the investor to purchase IPO shares, according to the U.S. Attorney’s statement. Instead, “Wolff made a series of misrepresentations and half-truths intended to deceive the auditors,” officials added.

In one such instance, Wolff “knowingly misrepresented” to the auditors that the investor used the proceeds of the loan for his mortgage business. Wolff was also accused of falsely telling Aquacell’s auditors that the investor did not participate in the IPO, concealing material information about the investor’s prior failure to make the promised payment of $1.75 million, and submitting a fraudulent financial statement from the investor that concealed the use of the loan proceeds to participate in the IPO.

Wolff had faced as much as 10 years in prison and a $1 million fine. He also was sentenced to two years probation after the home detention is completed.