William H. Rinehart, Jonathan A. Beck, and Kevin P. Clark
Litigation Release No. 17701 /August 27, 2002
Accounting and Auditing Enforcement Release No. 1619 /August 27, 2002
Securities and Exchange Commission v. William H. Rinehart, Jonathan A. Beck, and Kevin P. Clark, Civil Action No. C-02-4105 (BZ) (N.D. Cal.) (August 27, 2002)
SEC CHARGES THREE MORE FORMER CRITICAL PATH EXECUTIVES WITH PARTICIPATING IN FINANCIAL FRAUD
Two of the Executives Are Also Charged with Insider Trading in Company Stock During the Fraud
The Securities and Exchange Commission today announced new developments in its investigation of the financial fraud at Critical Path, Inc., a California company that provides e-mail services. In a civil action filed today in the United States District Court for the Northern District of California, the Commission charged three additional former Critical Path executives with fraudulently participating in the scheme to inflate the company's revenues and earnings for fiscal 2000. Named in the new complaint are William H. Rinehart, 38, the former head of Critical Path's North and Latin America sales forces; Jonathan A. Beck, 33, a former vice president of sales at Critical Path; and Kevin P. Clark, 37, a former regional vice president of sales at the company. The complaint also charges Beck and Clark with insider trading in Critical Path stock during the financial fraud. Rinehart and Clark have reached settlements with the Commission.
Also today, the United States Attorney's Office for the Northern District of California announced criminal charges against Beck and Clark.
In April 2001, Critical Path restated its financial results for the third quarter 2000 and revised previously-announced results for the fourth quarter and full year 2000. Earlier this year the Commission instituted and settled cease-and-desist proceedings against Critical Path (Exchange Act Release No. 34-45393) and filed a settled civil injunctive action against Critical Path's former president David A. Thatcher and a former vice president of sales, Timothy J. Ganley (Litigation Release No. 17353). The Commission also suspended Thatcher from appearing or practicing before the Commission as an accountant (Exchange Act Release No. 45683).
The complaint filed today alleges that during 2000 and early 2001 William Rinehart directed his sales force to arrange certain transactions for which Critical Path improperly recorded revenue of approximately $6.3 million for the fourth quarter of fiscal 2000. Two of these transactions were fictitious. Rinehart issued side letters that allowed a third customer, in its sole discretion, to terminate a transaction with Critical Path. In early 2001, Rinehart signed a letter to Critical Path's auditors that stated falsely that all of the company's sales were bona fide. Jonathan Beck participated in one of the fraudulent transactions, for which Critical Path improperly recorded revenue of approximately $2.125 million. Kevin Clark also participated in certain of the fraudulent transactions, for which the company improperly recorded revenue totaling approximately $2.15 million.
The Commission's complaint further alleges that Beck illegally sold 27,348 shares of Critical Path stock and Clark illegally sold 16,325 shares based on non-public information they possessed about the fraud and the company's true financial condition. By selling shares while the fraud was underway, Beck avoided losses of $586,368 and Clark avoided losses of $343,140.
Simultaneously with the filing of the Commission's complaint, and without admitting or denying the Commission's allegations, Rinehart and Clark consented to the entry of final judgments imposing the relief detailed below.
Rinehart consented to:
- A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
- Payment of a $110,000 civil penalty for his participation in the financial fraud; and
- A five-year bar from acting as an officer or director of a public company.
Clark consented to:
- A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
- Payment of $378,912 ($343,140 in disgorgement plus $35,772 prejudgment interest).
The Commission thanks the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
The Commission's investigation in this matter is continuing.
