Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19668 / April 25, 2006
Accounting and Auditing Enforcement
Release No. 2420/ April 25, 2006
Securities and Exchange Commission v. Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc., Civil Action No. 2: 06-CV-11935
SEC Charges Hayes Lemmerz International, Inc., and Four Former Senior Officers with Fraud
On April 25, 2006, the Commission filed a complaint in the United States District Court for the Eastern District of Michigan against HLI Operating Company, Inc., formerly known as Hayes Lemmerz International, Inc. (Hayes), and four of its former senior officers. The Commission charged that Ranko Cucuz (Hayes' former Chief Executive Officer), William D. Shovers (Hayes former Chief Financial Officer), Jesus Bonilla-Valdez (former Vice President of the Aluminum Wheel Group (AWG), a large business unit of Hayes) and Ronald Lee Kolakowski (former President of the North American Wheel Group (NAWG), a large operating division of Hayes) participated in a multi-year accounting fraud at the company between 1999 and 2001. As detailed below, defendants Hayes and Kolakowski have agreed to settle this matter without admitting or denying the allegations in the Commission's complaint.
The Commission's complaint alleges that a financial fraud took place at Hayes from fiscal year 1999 through the first quarter of 2001 and that Hayes, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results. The complaint alleges that Hayes personnel used several mechanisms to increase income and revenue fraudulently, including: (1) inappropriately deferring operating expenses to balance sheet accounts, (2) failing to process vendor invoices, (3) understating employee fringe benefits and (4) improperly recording certain customer discounts to balance sheet accounts.
The complaint alleges that, as a result of Hayes' fraudulent scheme, Hayes made materially false filings with the Commission in fiscal years 1999 and 2000 and for the first quarter of 2001, including the company's annual report on Form 10-K for the fiscal year ending January 31, 2001, and the quarterly reports on Forms 10-Q for the quarterly periods ended April 30, 2000, July 31, 2000, October 31, 2000 and April 30, 2001. The complaint alleges that Hayes former senior management directed NAWG plant personnel to engage in many of the improper accounting practices detailed above.
The complaint also alleges that, upon learning of the fraudulent accounting scheme, Cucuz and Shovers made affirmative misrepresentations to the company's outside independent auditor about Hayes' financial statements and caused Hayes to make Commission filings containing material misrepresentations. The complaint further alleges that Cucuz and Shovers took affirmative steps to conceal information about the improper accounting practices from Hayes' outside independent auditor and Hayes' Audit Committee and Board of Directors. Finally, the complaint alleges that Cucuz and Shovers made material misrepresentations about Hayes' financial condition in connection with a $300 million Rule 144A bond offering by Hayes in June 2001.
In December 2001, Hayes restated its results for fiscal years 1999, 2000 and for the first quarter of 2001. Hayes filed for Chapter 11 bankruptcy due, in part, to revelations about its improper accounting practices. Hayes emerged from bankruptcy in June 2003.
The Commission's complaint alleges that by engaging in the foregoing conduct: (i) defendant Hayes violated the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), as well as the reporting, books and records, and internal controls provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13); (ii) defendants Cucuz, Shovers, Bonilla-Valdez and Kolakowski violated the antifraud provisions of the Exchange Act (Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5), the internal control and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1) and aided and abetted Hayes' violations of the issuer reporting, books and records, and reporting provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13). The complaint additionally charges Cucuz and Shovers with violating the antifraud provisions of the Securities Act (Section 17(a) of the Securities Act) and the provision of the Exchange Act that prohibits an officer or director from lying to auditors (Exchange Act Rule 13b2-2).
Hayes has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a final judgment permanently enjoining it from violating Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13. Kolakowski has also agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a final judgment (a) permanently enjoining him from violating Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13; (b) ordering him to pay a civil penalty of $75,000; and (c) imposing an officer and director bar for a period of ten years.
With respect to the three remaining defendants -- Cucuz, Shovers and Bonilla-Valdez -- the Commission's complaint seeks an injunction against future violations of the federal securities laws, an order prohibiting them from acting as officers or directors of a public company, disgorgement of all unlawful gains with prejudgment interest, and civil monetary penalties.
In a related matter, the Commission also announced today that it instituted settled administrative proceedings against Allen Buntin, James Jarrett and Greg Jones, all of whom are former business unit controllers at Hayes' NAWG operating division.
In these related administrative proceedings, the Commission issued three Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Orders) against Allen Buntin, James Jarrett, and Greg Jones individually. In the Matter of Allen Buntin; In the Matter of James Jarrett; and In the Matter of Greg Jones.
The Orders require that Buntin, Jarrett and Jones cease and desist from committing or causing any violations and any future violations of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1 and causing any violations and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 13a-1 and 13a-13. Buntin, Jarrett and Jones consented to the issuance of the respective Orders without admitting or denying the findings in the Orders.
