Mary E. Crabtree
SECURITIES EXCHANGE ACT OF 1934
Release No. 48961 / December 19, 2003
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1929 / December 19, 2003
Admin. Proc. File No. 3-11362
In the Matter of MARY E. CRABTREE Respondent. |
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ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Mary E. Crabtree ("Crabtree" or "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
RESPONDENT
1. Crabtree, age 60, resides in Mt. Juliet, Tennessee. She was employed by an issuer whose securities are registered pursuant to Section 12 of the Exchange Act ("the Company") for 34 years and served as Distribution Manager at its Nashville distribution center since 1980. Crabtree retired in December 2001.
FACTS
2. In the last few weeks of the Company's fiscal year ended February 3, 2001, the president of one of the Company's divisions (the "Division President") learned that the division would not meet its internal sales targets. On January 31, three business days before the end of the Company's fiscal year, the Division President convened a meeting of her staff to discuss the shortfall. During this meeting, the Division President conveyed that a failure to achieve the division's sales targets was not acceptable. She instructed her staff to take whatever action was necessary to achieve the division sales targets.
3. Two Company employees, a division vice president (the "Division Vice President") and the Division's Director of Customer Care, met with Crabtree to discuss shipping the orders for a specific Company customer by the Company's fiscal year end. Such a shipment would be in advance of that customer's requested shipping date and these two Company's employees knew that this customer had already specifically refused early shipment. The Division Vice President told the Division President about the plan to ship these orders early, and the Division President approved the plan.
4. The Company did not ship the orders as planned, but Crabtree, after meeting with the Director of Customer Care, prematurely recorded the orders as shipped. This caused the Company to issue invoices to the customer and prematurely record $2.8 million of improper sales revenue, making its books and records inaccurate. Because the Company improperly recognized this sales revenue in the fourth quarter of fiscal 2001, the Company's audited annual financial statements for fiscal year 2001 were not prepared in conformity with generally accepted accounting principles ("GAAP"). As a result, the Company overstated its net earnings on financial statements included in its Form 10-K for fiscal year 2001 filed with the Commission in May 2001; net earnings after a charge for discontinued operations for the fourth quarter were overstated by 2.7% and for the year by 1.6%.
5. In late 2001, the Director of Customer Care told the Company's human resources department that she could not sign her annual ethics certification as a result of her involvement in certain conduct that occurred during the fourth quarter of fiscal year 2001. She disclosed the scheme to record prematurely sales revenue.
6. The Company's investigation revealed that in the first three quarters of the Company's fiscal year 2001 and the first two quarters of its fiscal year 2002, Crabtree caused other orders to be recorded as shipped even though shipment did not occur until the respective following quarter, making the Company's books and records inaccurate. As a result of Crabtree's misconduct, the Company's net earnings after a charge for discontinued operations in each of the six quarters ended between April 29, 2000, and August 4, 2001, were overstated or understated by 2.7% to 18.0%.
7. Crabtree recorded goods as shipped when they were not and scanned bills of lading2 into the Company's accounting system to improperly book sales revenue before the goods were actually shipped.
VIOLATIONS
8. Section 13(b)(5) of the Exchange Act provides that no person shall knowingly circumvent a system of internal accounting controls or knowingly falsify any book, record or account described in Section 13(b)(2).
9. Section 13(b)(2)(A) of the Exchange Act requires issuers of registered securities to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and the dispositions of their assets. Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified any book, record, or account subject to Section 13(b)(2)(A).
10. By reason of the conduct described above, Crabtree violated Exchange Act Section 13(b)(5) and Rule 13b2-1 by knowingly falsifying the Company's books and records when she improperly recorded goods as shipped when they were not shipped until the following period. Crabtree also violated Section 13(b)(5) when she knowingly circumvented the Company's system of internal controls by scanning bills of lading into the Company's accounting system before the goods were shipped. Crabtree was a cause of the Company's violations of Section 13(b)(2)(A) of the Exchange Act by improperly recording sales revenue and failing to keep books and records that accurately recorded the Company's transactions and disposition of assets for each quarter in fiscal year 2001 and the first two quarters of fiscal year 2002.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Crabtree's Offer.
Accordingly, it is hereby ORDERED that:
Respondent Crabtree cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1, and shall cease and desist from causing any violations and any future violations of Section 13(b)(2)(A) of the Exchange Act.
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
Last Reviewed or Updated: June 27, 2023