Securities Law Prof Blog

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

Thursday, November 12, 2009

SEC Settles Regulation G Charges against SafeNet, Former Officers and Former Accountants

The SEC settled charges against SafeNet, Inc., its former Chief Executive Officer, Anthony Caputo, its former Chief Financial Officer, Kenneth Mueller, and three former SafeNet accountants, Clinton Ronald Greenman, John Wilroy, and Gregory Pasko. The SEC alleged that, during the period from the fourth quarter of 2000 through May 2006, SafeNet engaged in two fraudulent schemes — one involving the backdating of options and the other earnings management. Each scheme resulted in SafeNet materially misstating its financial results and disseminating materially false and misleading information concerning its financial condition. According to the complaint, Mueller and Caputo were involved in both schemes, while Greenman, Wilroy and Pasko were involved only in the earnings management scheme.

The SEC release states that this is the agency's first enforcement action brought pursuant to Regulation G. Regulation G applies whenever a reporting company discloses publicly any material information that includes a "non-GAAP financial measure." Non-GAAP financial measures, which are not calculated in conformity with Generally Accepted Accounting Principles, often exclude non-recurring, infrequent, or unusual expenses. Regulation G requires companies to reconcile the non-GAAP financial measure to the most directly comparable GAAP financial measure. Regulation G also prohibits companies and their employees from disseminating false or misleading non-GAAP financial measures or presenting the non-GAAP financial measures in such a manner that they mislead investors or obscure the company's GAAP results.

All defendants have agreed to settle this matter, without admitting or denying the allegations in the complaint.  Besides injunctive relief, SafeNet will pay a civil penalty of $1,000,000.  The individual defendants will pay civil penalties ranging from $15,000 to $250,000.

The settlements with SafeNet, Greenman, and Pasko take into account the cooperation with the SEC's investigation by SafeNet and these individuals. All of the settlements of the civil action are subject to the approval of the United States District Court for the District of Columbia.

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