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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, November 17, 2009

SEC Charges Two Former Officers of Tivia with Accounting Fraud

The SEC charged two former Silicon Valley executives for improperly inflating the reported financial results at Santa Clara, Calif., semiconductor company Tvia, Inc.  The SEC alleges that Tvia's former Vice President of Worldwide Sales, Benjamin Silva III, made side deals with customers and concealed the terms from Tvia's executives and auditors, which fraudulently caused the company to report millions of dollars in excess revenue. The SEC further alleges that Tvia's former Chief Financial Officer Diane Bjorkstrom also played a role in Tvia's improper accounting, allowing Tvia to recognize revenue on merchandise shipped to a customer weeks before the customer had agreed to accept it, and failing to act on red flags surrounding Silva's misconduct.  Bjorkstrom agreed to settle the SEC's charges against her by paying a $20,000 penalty.

The SEC's complaint, filed in federal district court in San Jose, alleges that Silva's side agreements illegally inflated Tvia's revenue by approximately $5 million from September 2005 through June 2006. This caused the company's quarterly revenue to be consistently overstated, including by as much as 165 percent in one quarter. The SEC further alleges that in order to divert auditors' attention from delinquent customer payments, Silva fraudulently applied payments from new customers to old receivables.

According to the SEC's complaint, Silva's misconduct allowed him to meet his revenue targets at the company. For his efforts in meeting those targets, Silva received an award of options to buy 70,000 shares of Tvia stock. Before the fraud was discovered in early 2007, Silva exercised and sold all of his available Tvia options for a profit of $300,000.

The SEC's complaint against Silva charges him with violations of the antifraud, reporting, books and records and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Silva's ill-gotten gains plus prejudgment interest, and a financial penalty. The SEC also seeks a court order permanently barring Silva from acting as an officer or director of any public issuer.

In the settled enforcement action against Bjorkstrom, she consented without admitting or denying the SEC's allegations to an order requiring her to pay the penalty and banning her from appearing or practicing before the SEC as an accountant for a period of two years.

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