Thursday, April 26, 2007

Former Utility Officers Settle SEC Accounting Case

Four former senior executives with South Dakota-based utility NorthWestern Corp. agreed to settle SEC civil charges that they overstated the performance of the company and its telecommunications unit, Expanets, in 2002.  The four defendants are former CEO Merle D. Lewis, former chief operating officer Richard R. Hylland, former CFO Kipp D. Orme,and former controller Kurt D. Whitesel.  According to the SEC Litigation Release (here):

The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, these four defendants were responsible for overstating performance and concealing problems at Expanets and NorthWestern. The Commission alleges that each defendant knew or was reckless in not knowing about the inaccuracy of NorthWestern's public claims that Expanets' new computer system was "operational" or "fully operational." The Commission further alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the computer system problems, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002. The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' and NorthWestern's income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments. Finally, the Commission alleges that each defendant was responsible for NorthWestern's failure to disclose significant intercompany cash advances to its subsidiaries during the first half of 2002, which impacted the company's liquidity position and demonstrated the subsidiaries' continuing financial difficulties.

The four defendants settled the case, with Lewis and Hylland paying a $150,000 civil penalty, Orme paying $100,000, and Whitesel paying $25,000.  NorthWestern agreed to be acquired by Babcock & Brown Infrastructure Ltd. in April 2006. (ph)

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Civil Enforcement, Securities | Permalink

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