SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16251 / August 12, 1999
Accounting and Auditing Enforcement Release No.1153 / August 12, 1999
SECURITIES AND EXCHANGE COMMISSION V. JERALD M. BANKS,
99 Civ. 8855 (TPG) (SDNY) (August 12, 1999)
SEC FILES SETTLED ACTION AGAINST JERALD M. BANKS, FORMER LIVENT GENERAL COUNSEL, FOR ACCOUNTING FRAUD
On August 12, 1999, the Securities and Exchange Commission filed a settled civil injunctive action in the United States District Court for the Southern District of New York against Jerald M. Banks, the former general counsel and secretary of Livent Inc., a Canadian-based theater owner and producer of live theatrical entertainment such as Ragtime, The Phantom of the Opera, Show Boat, and Fosse. The Complaint alleges that Banks, an attorney, participated in a fraudulent accounting scheme by the former senior management of Livent to inflate revenues reported by the company in financial statements filed with the Commission and disseminated publicly.
According to the Complaint, from 1996 through 1997, Livent former senior officers orchestrated the improper recognition of at least $34 million (Cdn) in revenue by entering into various "revenue-generating" transactions having secret side agreements that required Livent to pay back amounts advanced by the counter parties to the transactions. The Complaint alleges that Banks drafted and finalized three of these agreements and/or actively dealt with the legal representatives of the counter parties in the negotiation and finalization of these agreements. Banks, along with other Livent officers, allegedly concealed the side agreements from the company's independent auditors in order to improperly record revenue from the transactions and inflate the company's revenues.
As a result of the scheme, Livent made false public filings which contained disclosures and financial statements that were materially false and misleading, in part, because they recognized $12.2 million (Cdn) in fiscal 1996 and $12 million (Cdn) in fiscal 1997 relating to the fraudulent transactions in which Banks participated.
Simultaneous with the filing of the Complaint, Banks consented, without admitting or denying the allegations of the Complaint, to a permanent injunction enjoining him from violating the antifraud, books and records, and internal controls provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and ordering him to pay a civil monetary penalty of $25,000 (US).
Banks also consented to the entry of an administrative order related to the conduct described in the Complaint. Without admitting or denying the Commission's findings, Banks consented to an order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an attorney for five years and ordering him to cooperate with the Commission.
In a related matter, the Commission filed a Complaint on January 13, 1999, seeking to permanently restrain eight other former Livent employees from violating or aiding and abetting violations of the antifraud, books and records, and internal controls provisions of the federal securities laws, Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and seeking civil monetary penalties against them. The January 13, 1999 Complaint seeks to permanently bar four former employees from serving as officers or directors of a public company and seeks disgorgement, prejudgment interest and Insider Trading Sanctions Act ("ITSA") penalties from five former employees for insider trading. SEC v. Garth H. Drabinsky et al., 99 Civ. 0239 (TPG) (SDNY) (January 13, 1999). One former employee named in the January 13, 1999 Complaint consented, without admitting or denying the allegations of the Complaint, to the entry of a final judgment permanently enjoining him from his violative conduct, and permanently barring him from acting as an officer or director of a public company. Three others consented, without admitting or denying the allegations of the Complaint, to the entry of final judgments permanently enjoining each of them from their violative conduct and ordering two of them to pay disgorgement and prejudgment interest.
Also related to the present case, the Commission entered four administrative orders. Without admitting or denying the Commission's findings, Livent consented to an order directing it to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-16 and 13b2-1 thereunder, and ordering Livent to cooperate with the Commission. See In the Matter of Livent Inc., Securities Act Release No. 7627, dated January 13, 1999. One former Livent senior accountant consented, without admitting or denying the Commission's findings, to an order pursuant to Rule 102(e) of the Commission's Rules of Practice, finding that he engaged in improper professional conduct and willfully violated the federal securities laws, and barring him from appearing or practicing before the Commission as an accountant, with the right to re-apply after five years. See In the Matter of Gordon C. Eckstein, Chartered Accountant, Securities Act Release No. 7629, dated January 13, 1999. Two other former accountants consented, without admitting or denying the Commission's findings, to the entry of Rule 102(e) orders directing one accountant to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 and 13b2-2 thereunder; finding that each engaged in improper professional conduct and willfully violated the federal securities laws; and barring each from appearing or practicing before the Commission as an accountant, with the right to re-apply after three years. See In the Matter of Christopher M. Craib, Chartered Accountant, Securities Act Release No. 7628, dated January 13, 1999; In the Matter of Tony Fiorino, Securities Act Release No. 7631, dated January 21, 1999.
The Commission is continuing its investigation in this matter.
