Risk & Compliance

Swiss Misstep: SEC Charges 3 with Fraud

Former officers of a Switzerland-based medical company manipulated reserves and declined to recognize expenses and liabilities, the commission char...
Stephen TaubOctober 17, 2007

The Securities and Exchange Commission on Wednesday filed civil fraud charges against three former finance executives of a Swiss public company for allegedly misstating financial results.

The three accused were Urs Kamber, former CFO of medical device maker Centerpulse Ltd.; former controller Stephan Husi; and Richard May, former group vice president of finance, tax counsel, and treasurer for Centerpulse USA Holding Co. The SEC said they manipulated reserves and refused to recognize expenses and liabilities, inflating the company’s income in the two quarters.

Kamber, Husi, and May were charged with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal-controls provisions of the federal securities laws. Kamber was further charged with violating the certification provision of the Sarbanes-Oxley Act, and May with the lying-to-auditors provision of the Exchange Act.

The commission is seeking a permanent injunction, a civil monetary penalty, an officer-and-director bar, and disgorgement with prejudgment interest against each of the three individuals.

According to the complaint, the three improperly deferred recognition of a $25 million expense for third-quarter 2002, refused to write down $3.4 million in costs associated with an impaired asset, and approved $3.6 million in improper reserve adjustments. As a result, Centerpulse—which traded American Depositary Shares in the United States—overstated its third-quarter 2002 pretax income by approximately $32 million.

They were also accused of fraudulently inflating Centerpulse’s fourth-quarter and fiscal 2002 income by refusing to increase a reserve to cover at least $18 million in liabilities, improperly using anticipated refund credits to offset $5 million in expenses, and again refusing to write down $3.4 million in costs associated with an impaired asset. These errors caused Centerpulse, which was acquired by Zimmer Holdings Inc. in 2003, to overstate its fourth-quarter and fiscal 2002 pretax income by at least $26.4 million, according to the SEC.

Attempts by CFO.com to contact the defendants’ attorneys were unsuccessful.

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