Former Hayes Lemmerz CEO, CFO Found Liable for Securities Fraud
The US Securities and Exchange Commission (SEC) has announced that on August 20 a federal duty found former Hayes Lemmerz International CEO Ranko Cucuz and former CFO William D. Shovers liable for securities fraud charges against the SEC. The verdict followed a two-week jury trial in Detroit, Michigan.
The SEC’s complaint, filed on April 25, 2006, alleged that Hayes Lemmerz, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results. The complaint alleged that, as a result of the fraudulent accounting scheme, the company made materially false filings with the SEC in the 1999 and 2000 fiscal years and for the first quarter of 2001. The complaint also alleged that, upon learning of the fraudulent accounting scheme, Cucuz and Shovers made “affirmative misrepresentations” to the company’s outside independent auditor about Hayes Lemmerz’ financial statements and caused the company to make SEC filings containing material misrepresentations. The complaint further alleged that Cucuz and Shovers took affirmative steps to conceal information about the improper accounting practices from Hayes Lemmerz’ outside independent auditor and the company’s Audit Committee and Board of Directors. Finally, the complaint alleged that Cucuz and Shovers made material misrepresentations about Hayes Lemmerz’ financial condition in connection with a $300 million Rule 144A bond offering by the company in June 2001.
The jury found that Shovers violated: (i) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)(3)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder); (ii) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1); and (iii) the lying-to-auditor provision of the Exchange Act (Rule 13b2-2). The jury also found that Shovers aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13). Finally, the jury found Cucuz liable for violations of the antifraud provisions of the Securities Act (Section 17(a)(3)). Cucuz was found not liable on the other claims against him. The penalties to be implemented against Cucuz and Shovers will be determined by the court.
Cucuz and Shovers are the last two remaining defendants in this action. Previously, the SEC reached settlements with the company, Ronald Lee Kolakowski (the former President of Hayes Lemmerz’ North American Wheel Group), and Jesus Bonilla-Valdez (former Vice President of Hayes Lemmerz’ Aluminum Wheel Group).