Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella
U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 19580 / February 27, 2006
Accounting and Auditing Enforcement Release No. 2387 / February 27, 2006
Securities and Exchange Commission v. Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella, Civil Action NO. 2:06-CV-10845 (E.D. Mich.) (February 27, 2006)
SEC Files Civil Action against the Chief Executive Officer, Chief Financial Officer and Former Controller of Sun Communities in Connection with Material Misstatements of Income; SEC Files Settled Proceeding with Sun Communities and Former Audit Engagement Partner
On February 27, 2006, the Securities and Exchange Commission filed an injunctive action in the United States District Court for the Eastern District of Michigan against the Chief Executive Officer, Chief Financial Officer and former Controller of Sun Communities, Inc. ("Sun"). According to the complaint, Sun failed to properly account for losses resulting from Sun's investment in SunChamp, LLC, a joint venture involved in the development of manufactured housing communities. As a result, Sun materially overstated its income from January 2000 through December 2002. The complaint alleges that Sun violated generally accepted accounting principles by failing to report any of SunChamp's losses during seven quarters, and by improperly delaying or underreporting Sun's share of SunChamp's losses in four additional quarters. According to the complaint, Sun's chief financial officer, Jeffrey P. Jorissen, directed those accounting decisions. The complaint further alleges that Sun maintained an improper general reserve and improperly "smoothed" earnings by recording expenses in improper periods. According to the complaint, Gary A. Shiffman, the Chairman of Sun's Board of Directors, and its Chief Executive Officer and President, caused falsifications of Sun's records by providing false information regarding the timing of agreements entered into by Sun. The complaint also alleges that Mary A. Petrella, Sun's controller during the relevant period, falsified Sun's records by releasing funds from Sun's general reserve and recording expenses in improper periods.
The complaint alleges that Jorissen violated Sections 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act"), Sections 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 13b2-1 and 13b2-2 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and seeks a permanent injunction, disgorgement, prejudgment interest and a civil penalty against him. Further, the complaint alleges that Shiffman violated Rule 13b2-1 of the Exchange Act and seeks a permanent injunction and civil penalty against him. Finally, the complaint alleges that Petrella violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, seeking a permanent injunction and civil penalty against her.
In a related action, on February 27, 2006, the Commission issued a settled cease-and-desist order against Sun and its main operating subsidiary, Sun Communities Operating Limited Partnership ("SCOLP"). The Order finds that Sun and SCOLP violated Sections 17(a)(2) and (3) of the Securities Act and books and records, internal controls and periodic reporting provisions of the Exchange Act. The Order requires Sun and SCOLP to cease and desist from committing or causing any violations and any future violations of these provisions. In addition, Sun consented to undertakings to retain an independent consultant to perform a review of its internal controls, record-keeping and financial reporting policies and procedures and to make recommendations regarding improvements. Sun and SCOLP consented to the issuance of the Order without admitting or denying any of the findings therein. (Rel. 33-8665; Rel. 34-53381; AAER Rel. 2386; File No. 3-12221)
The Commission also instituted settled administrative proceedings against Sun's former auditor, Gregory G. Nelson. The Order finds that Nelson, the engagement partner on the Sun audit, engaged in improper professional conduct in connection with the 2000 and 2001 audits and the first quarter 2002 interim review of Sun's financial statements. The Order finds that Nelson failed to exercise due professional care and denies Nelson the privilege of appearing or practicing before the Commission as an accountant, with the right to apply to the Commission for reinstatement after two years from the date of the Order. Nelson consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-53380; AAER Rel. 2385; File No. 12220)