12.01.09
SEC vs. Home Solutions of America
The SEC has a habit of belatedly suing those that Andrew Left of Citron Research has criticized. This time the company is Home Solutions of America, a company that I have written about a few times. I have written about Left many times before. Definitely make sure to see my “Can you trust the StockLemon” series, Part 1, Part 2, Part 3, Part 4.
Here are some excerpts from the SEC’s litigation release:
The SEC alleges that Home Solutions of America, Inc. recorded millions of dollars in bogus revenue and issued a series of materially false press releases boasting robust financial results following Katrina and other weather-related disasters, thus inflating the company’s stock price. The stock price later plummeted after large insider stock sales, the filing of private securities lawsuits alleging fraud, and the company’s public announcement that it would restate its financial statements. Home Solutions then-CEO Frank Fradella, who is among seven individuals charged by the SEC in the scheme, dumped approximately $6.8 million worth of stock into the inflated market.
The SEC further alleges that Marshall engaged in a separate revenue-inflation scheme at Fireline, booking more than $9 million of fake construction revenue from undisclosed, related-party contracts with entities that Marshall controlled. In fact, at the time Fireline caused Home Solutions to record the revenue, very little work had been performed on the projects and most remained bare-dirt lots.
Unlike most SEC complaints, just about every executive at HSOA was named, and four of the lesser executives have already consented to the SEC’s findings, without acknowledging guilt of course
Four others charged today by the SEC simultaneously agreed to settle on the following terms, without admitting or denying the allegations in the complaint.
- Former Home Solutions CFO and COO Rick O’Brien agreed to pay a $130,000 penalty.
- Former Fireline controller Stephen Gingrich agreed to pay a $25,000 penalty and to an administrative order barring him from practicing before the Commission as an accountant for at least three years.
- Former Fireline COO Thomas Davis agreed to pay a $25,000 penalty and to pay disgorgement and interest of $32,850.
- In addition, O’Brien, Gingrich and Davis each consented to final judgments permanently enjoining them from violating Sections 17(a)(2) and (3) of the Securities Act and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
- Finally, Jeff Craft, a business partner of Marshall, consented to a final judgment permanently enjoining him from violating Rule 13b2-2 under the Exchange Act.
So it turns out that once again the short seller was right, the executives were (allegedly) crooked, and the SEC was slow.
Disclosure: I have no positions and I have no connection to anyone involved besides reading Left’s blog.