Risk & Compliance

Guilty Verdict in Fake Filings

In a rare SEC action not settled out of court, Chancellor Corp.’s ex-leader is found liable for falsely inflating financial results from 1990 throu...
Stephen TaubNovember 20, 2007

A federal jury has found Brian Adley, former chairman and CEO of Chancellor Corp., guilty of securities fraud in a rare trial arising from an SEC complaint.

Adley was held liable for fabricating documents and fraudulent accounting from 1998 through 2000 in a scheme to inflate Chancellor’s reported assets, revenue, and income. He also was deemed guilty of paying unwarranted fees to entities that he controlled.

The Securities and Commission had alleged that Adley caused Chancellor — a defunct Boston-based transportation equipment leasing company — to file false financial statements in 1999 and 2000. He directed the wholesale fabrication of corporate documents, instructed that the documents be given to the company’s auditors, and coordinated the filing of the false financials, the SEC charged.

In 1999 Chancellor overstated its revenue by 177 percent, its net profit by 73 percent, and its assets by 12 percent, according to the SEC. In 2000, the company allegedly made false filings overstating its assets and income by 32 percent to 173 percent.

The court will determine civil sanctions and remedies at a later date.

The SEC previously settled with 10 defendants, including Chancellor Corp. and former company officials including its president, CFO, treasurer, two directors and audit-committee members, outside auditing firm, and three audit-team members.