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Univ. of Toledo College of Law

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Thursday, March 15, 2007

SEC Settles Accounting Fraud Charges against Former Raytheon Execs

The Securities and Exchange Commission announced today that it has instituted settled enforcement proceedings against three former financial officers of Raytheon Company and one of its subsidiaries. The SEC charged that they were each involved in or aware of certain improper accounting practices that operated as a fraud by failing to adequately and accurately disclose the deteriorating financial results and business of Raytheon's commercial aircraft manufacturing subsidiary. The SEC also charged that each officer was involved in or aware of certain false and misleading disclosures in Raytheon's periodic reports.
According to the allegations in SEC's complaints filed today in the U.S. District Court for the District of Columbia:

Between 1997 and 1999, Raytheon improperly recognized revenue on RAC's sale of unfinished aircraft through "bill and hold" sales transactions that did not comply with Generally Accepted Accounting Principles. These practices resulted in material overstatements of RAC's reported annual net sales revenue and operating income in 1997 and 1998, enabling both RAC and Raytheon to meet certain internal and external earnings targets. According to the SEC, Gray was personally involved in these premature revenue recognition practices, and Pliner was aware of them as the company's lead outside auditor.
 
Between 1997 and 2001, there were certain improper disclosure and accounting practices at Raytheon related to RAC's commuter aircraft business, including the failure to adequately disclose in the company's periodic reports material risks, trends, and uncertainties associated with the deterioration of that business line. These practices resulted in the failure to recognize between $67 million and $240 million in losses that were inherent in a planned "soft landing" of the commuter aircraft line at year-end 2000, which would have reduced Raytheon's 2000 profit before taxes by 8 to 27 percent. These losses were instead improperly taken during the third quarter of 2001, when Raytheon recorded a $693 million charge related to its commuter assets after September 11, 2001. Given the charge that should have been taken at year-end 2000, Raytheon's third quarter 2001 commuter loss provision was overstated by 10 to 53 percent. According to the SEC, as the company's CFO, Caine was personally involved in and aware of these practices throughout 2000 and 2001. In addition, as Raytheon's lead auditor between 1997 and 1999, and as the company's Controller in 2000 and 2001, Pliner was aware of and later personally involved in these improper practices.

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