Risk & Compliance

It’s Twilight for Sun Communities Ex-CFO

Former exec Jorissen consents to SEC charges of accounting abuse, while cases against the CEO and former controller are dropped.
Stephen TaubAugust 12, 2008

The former CFO of Sun Communities Inc. took the brunt of Securities and Exchange Commission charges at the end of an accounting-practices investigation that originally had targeted the CEO and controller as well.

Without admitting to or denying the findings, Jeffrey P. Jorissen consented to a final judgment enjoining him from violating securities rules, and agreed to a civil penalty of $25,000. In addition, he agreed to be suspended from appearing or practicing before the SEC as an accountant, although he has rights to be reinstated after two years.

At the same time, the SEC dismissed claims against CEO Gary A. Shiffman and former controller Mary A. Petrella. Back in February 2006, the SEC had filed an injunctive action against the three officials of Sun, a real estate investment trust that owns and operates 136 manufactured-housing communities in 18 states.

According to that complaint, Sun failed to account properly for losses resulting from the company’s investment in SunChamp LLC, a joint venture involved in the development of manufactured housing communities. As a result, Sun materially overstated its income from January 2000 through December 2002.

The complaint had alleged that Sun violated generally accepted accounting principles by failing to report any of SunChamp’s losses during seven quarters, and by improperly delaying or underreporting Sun’s share of SunChamp’s losses in four additional quarters. It said that Jorissen had directed those accounting decisions.

It had been alleged also that Sun maintained an improper general reserve and improperly “smoothed” earnings by recording expenses in improper periods. The SEC had said that Shiffman caused falsifications of Sun’s records by providing false information regarding the timing of agreements entered into by Sun, and that Petrella falsified Sun’s records by releasing funds from Sun’s general reserve and recording expenses in improper periods.

In a related action at the time, the commission issued a settled cease-and-desist order against Sun and its main operating subsidiary, Sun Communities Operating Limited Partnership. In addition, Sun consented to undertakings to retain an independent consultant to perform a review of its internal controls, record-keeping and financial reporting policies and procedures and to make recommendations regarding improvements. Sun and SCOLP consented to the issuance of the order without admitting to or denying any of the findings.

The commission also settled administrative proceedings against Sun’s former auditor, Gregory G. Nelson, alleging that Nelson, the engagement partner on the Sun audit, engaged in improper professional conduct in connection with the 2000 and 2001 audits and the first quarter 2002 interim review of Sun’s financial statements. Without admitting to or denying the findings, Nelson agreed to an order denying him rights to appear or practice before the commission as an accountant, although he can apply reinstatement in two years.