Risk Management

Hayes Lemmerz Fines: $50,000 for CFO, $10,000 for CEO

Accounting-scheme case against the auto-parts maker is wrapped up with heavier finance-chief penalty levied by a federal court in Michigan.
Stephen TaubJanuary 26, 2009

A federal court fined and imposed a $50,000 fine on a former CFO of Hayes Lemmerz International Inc., and a $10,000 fine on a former CEO, after a jury earlier found that the two men had violated securities laws in an accounting scheme.

The U.S. District Court for the Eastern District of Michigan fined the former finance chief, William D. Shovers, enjoined him from violating certain antifraud and other provisions of the federal securities laws, and barred him from acting as an officer or director of a publicly traded company for five years.

The Securities and Exchange Commission, in making an announcement of the action, said that Ranko Cucuz, the former CEO of the automobile parts manufacturer, was enjoined from violating securities antifraud rules in addition to being hit with his $10,000 fine.

In August, a federal jury ruled in the SEC’s favor in a civil fraud trial against Shovers. However, it ruled in the SEC’s favor on only one of four claims against Cucuz. The SEC had charged Cucuz and Shovers with engaging in securities fraud arising from an accounting scheme. Cucuz and Shovers were the last two remaining defendants in the SEC action. The jury ruling was in U.S. District Court for the Eastern District of Michigan.

Previously, the commission reached settlements with the company; with Ronald Lee Kolakowski, former president of its North American Wheel Group; and with Jesus Bonilla-Valdez, former vice president of its Aluminum Wheel Group. In addition, the SEC previously settled related administrative proceedings against three other former Hayes employees: Allen Buntin, James Jarrett, and Greg Jones.

The commission’s complaint, filed on April 25, 2006, alleged that Hayes, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results. It said that as a result of the fraudulent accounting scheme, Hayes made materially false filings in fiscal years 1999 and 2000, and for the 2001 first quarter, including for the Jan. 31, 2001, fiscal annual report, and quarterly reports for the April, July, and October periods of 2000 and the April 2001 period.

The complaint also alleged that Cucuz and Shovers made affirmative misrepresentations to the company’s outside independent auditor about Hayes’ financial statements and caused Hayes to make filings containing material misrepresentations.

In addition, the SEC alleged that Cucuz and Shovers took steps to conceal information about the improper accounting practices from Hayes’s outside independent auditor and its audit committee and board. It also said that Cucuz and Shovers made material misrepresentations about Hayes’s financial condition in connection with a $300 million bond offering by Hayes in June 2001.

While the jury ruled against Shovers in all four claims, the SEC said, jurors found Cucuz not liable on three claims. Cucuz, according to his attorney, was found liable only on the claim of negligence in his handling of accounting issues, because they believed that Cucuz should have been aware of the actions of other employees.