Barry Richard Kusatzky in the Matter of California Amplifier, Inc
On April 28, 2004, the Commission filed an injunctive action against Barry Richard Kusatzky ("Kusatzky"), alleging that during the period November 1999 through January 2001, Kusatzky, the former controller of California Amplifier, Inc. ("California Amplifier"), engaged in accounting fraud and insider trading. Specifically, the Complaint alleges that Kusatzky caused California Amplifier to materially overstate income and equity in its quarterly and annual financial statements for the period November 27, 1999 through November 25, 2000, by hiding $7.8 million in Company expenses. Kusatzky accomplished this fraud by fabricating financial statements and falsifying the Company's books and records. Kusatzky also concealed his fraud by presenting false records to California Amplifier's auditors.
According to the Complaint, in January 2000, before his fraud was discovered, Kusatzky illegally profited from his misdeeds. At that time, with full knowledge of his wrongdoing, Kusatzky exercised all his vested options and sold all his 15,000 shares of California Amplifier stock while in possession of material, non-public information that the Company's earnings were materially overstated. The Complaint alleges that at the time of his insider sales, Kusatzky knew that California Amplifier's earnings for the quarter ended November 27, 1999 were materially overstated because he was solely responsible for overstating them. Kusatzky's illegal sales enabled him to avoid losses of over $350,000. The Complaint also alleges that in March 2001, on the day before the Company's annual audit was to begin, Kusatzky confessed to his fraud. In a handwritten note provided to Company officials, Kusatzky admitted to hiding expenses and to making California Amplifier's "P+L look better." The Complaint alleges that Kusatzky's "confession" neither revealed the extent of his misstatement of California Amplifier's financial statements, nor acknowledged his insider trading.
The Complaint alleges that Kusatzky violated Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aided and abetted California Amplifier's 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. The Complaint seeks a permanent injunction prohibiting future violations of these provisions, disgorgement, including prejudgment interest, and civil penalties pursuant to Sections 21(d)(3) and 21A of the Exchange Act, and Section 20(d)(1) of the Securities Act. The Commission also seeks an order barring Kusatzky from serving as an officer or director of a public company.
In a related proceeding, on April 29, 2004, the Commission issued a settled Order against California Amplifier. The Order finds that during fiscal 2000 and much of fiscal 2001, California Amplifier failed to establish or maintain internal accounting controls sufficient to provide reasonable assurance that its financial statements were prepared in accordance with generally accepted accounting principles ("GAAP"). This lack of adequate internal controls allowed Kusatzky to commit fraud, caused the failure of the company to discover that Kusatzky was not a CPA. as he had represented, resulted in books and records that failed to accurately reflect the company's transactions, caused numerous other accounting errors, and caused California Amplifier to file materially false and misleading periodic reports with the Commission. The Order requires that California Amplifier cease and desist from committing or causing any violations and any future 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. California Amplifier consented to the entry of the Order without admitting or denying the findings therein.
See In the Matter of California Amplifier, Inc., Admin. Proc. No. 3-11469 - (April 29, 2004).
