SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16444 / February 18, 2000
Accounting and Auditing Enforcement Release No. 1231 / February 18, 2000
S.E.C. v. Mitchell C. Kahn et al., (N.D. ILL., CASE NO. 99 C 6343, Filed September 22, 1999)
The Securities and Exchange Commission (SEC) announced that on February 15, 2000 the United States District Court for the Northern District of Illinois entered a permanent injunction enjoining Thomas R. Ehmann (Ehmann) of Elmhurst, Illinois from violating Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-11 promulgated thereunder. The Court also ordered Ehmann to disgorge $16,500 in ill-gotten gains and prejudgment interest and to pay a civil penalty to the United States Treasury of $25,000.
The SEC's complaint alleged that Ehmann was involved in a scheme to defraud investors by materially overstating the financial condition and results of operations of First Merchants Acceptance Corporation (First Merchants), a sub-prime lender. The Commission's complaint alleges that First Merchants' president and vice president of strategic planning devised a scheme to, among other things, manipulate customer account information so that delinquent and uncollectible accounts appeared current. It alleges that Ehmann, First Merchants' CFO, discovered the scheme, yet took no acts to prevent it and, in fact, signed the 1996 Form 10-K filed with the Commission. According to the complaint, Ehmann also took affirmative acts to mislead First Merchants' outside auditors. The complaint alleges that these acts resulted in the overstatement of First Merchants' income by $76.7 million or 729% in the 1996 Form 10-K and 1997 Form 8-K filed with the Commission. Ehmann consented to the entry of the order without admitting or denying the SEC's allegations. The other two defendants, Mitchell Kahn and Paul Van Eyl, First Merchants' president and vice president of strategic development, respectively, remain in the case.