Symbol Technologies Agrees To Pay $37 Million Penalty
SEC Also Charges 11 Former Symbol Executives With Securities Fraud
Washington, D.C., June 3, 2004 – LAWFUEL – The Securities and Exchange Commission
today charged Symbol Technologies, Inc. with securities fraud and related
violations of the reporting, record-keeping and internal control provisions
of the federal securities laws. The SEC also charged eleven former Symbol
executives in connection with their roles in the fraud.
The SEC’s complaint alleges that from at least 1998 until early 2003, Symbol
and the other defendants engaged in numerous fraudulent accounting practices
and other misconduct that had a cumulative net impact of over $230 million
on Symbol’s reported revenue and over $530 million on its pre-tax earnings.
Based in Holtsville, N.Y., Symbol supplies mobile information systems using
bar code scanners and related technology and its stock is publicly traded on
the New York Stock Exchange.
Symbol agreed to settle the case without admitting or denying the
allegations. As part of the settlement, Symbol agreed to pay a $37 million
penalty for its conduct. The entire penalty amount will be distributed to
injured investors. In assessing the penalty amount, the Commission
considered the scope and severity of the fraud, Symbol’s initial efforts to
cover up the misconduct and impede two internal investigations and the
Commission’s investigation, and the company’s eventual cooperation and
“The scope and magnitude of the fraud at Symbol Technologies warrant the
imposition of significant penalties — not just against individual
wrongdoers, but also against the company responsible for having created and
fostered the environment in which the wrongdoing took place,” said Stephen
M. Cutler, Director of the Commission’s Division of Enforcement. “And while
the company ultimately did cooperate with the government — and received
credit for having done so — its initial response to our investigation
further harmed investors by delaying exposure of the fraud and allowing it
to continue longer than it otherwise might have.”
“This case presents another unfortunate example of deliberate misconduct at
a public company and underscores the Commission’s commitment to rooting out
fraudulent financial reporting,” added George N. Stepaniuk, Assistant
Regional Director in the Commission’s Northeast Regional Office in New York.
“When companies deliberately falsify financial results to meet
pre-determined targets, as Symbol did repeatedly, they commit securities
fraud. They and the individuals who perpetrate such frauds will be held
responsible for the harm they cause investors.”
The Commission’s complaint alleges as follows.
The defendants engaged in a fraudulent scheme to inflate revenue, earnings
and other measures of financial performance in order to create the false
appearance that Symbol had met or exceeded its financial projections.
Defendant Tomo Razmilovic, Symbol’s former president and CEO, and others at
the company fostered a “numbers driven” corporate culture obsessed with
meeting Wall Street estimates. With no regard for generally accepted
accounting principles (GAAP) or their financial reporting obligations, the
defendants used the following fraudulent schemes to align Symbol’s reported
financial results with market expectations: (a) a “Tango sheet” process
through which baseless accounting entries were made to conform the
unadjusted quarterly results to management’s projections; (b) the
fabrication and misuse of restructuring and other non-recurring charges to
artificially reduce operating expenses, create “cookie jar” reserves and
further manage earnings; (c) channel stuffing and other revenue recognition
schemes, involving both product sales and customer services; and (d) the
manipulation of inventory levels and accounts receivable data to conceal the
adverse side effects of the revenue recognition schemes. Together with
Razmilovic, defendants Kenneth Jaeggi, Brian Burke, Michael DeGennaro and
Frank Borghese comprised most of Symbol’s senior management team during the
relevant period and directed the fraud. Defendants Christopher DeSantis,
James Heuschneider, Gregory Mortenson, James Dean and Robert Donlon were
Symbol executives during this period and implemented the schemes.
While the accounting fraud was occurring, defendant Leonard Goldner,
Symbol’s former general counsel, manipulated stock option exercise dates to
enable certain senior executives, including himself, to profit unfairly at
the company’s expense. Rather than use the actual exercise date as defined
by the option plans, Goldner instituted, without board approval or public
disclosure, a practice of using a more advantageous date chosen from a
30-day “look-back” period so as to reduce the cost of the exercise to the
executive. To create the false appearance that these exercises actually
occurred on the selected dates, Goldner had his staff backdate the requisite
transactional documents and use the phony exercise dates in the forms on
which the executives reported their acquisitions to the Commission and the
In addition to committing securities fraud, some of the defendants
interfered with two internal investigations into Symbol’s accounting
practices and delayed the Commission’s investigation. After the Commission
began its investigation, Jaeggi directed subordinates to discard copies of
“Tango sheets” and other incriminating documents. During the same relevant
period, DeGennaro rigged the revenue recognition data provided to the
forensic accountants involved in the first internal inquiry, instructed
subordinates to withhold or delay providing information to subsequent
internal investigators, and directed employees to sanitize key portions of
schedules that they intended to provide to the investigators.
While these defendants were engaged in their efforts to derail the
investigations and cover up the fraud, Symbol filed multiple periodic
reports containing financial results that it has since restated, including
its Form 10-K for 2001 and a Form 10-Q that Jaeggi falsely certified in
violation of the new Sarbanes-Oxley certification provisions.
Symbol has agreed to the following relief:
* a permanent injunction against future violations of the
antifraud, reporting, books and records and internal controls provisions of
the federal securities laws.
* a civil penalty of $37 million and nominal disgorgement of
$1, all of which will be distributed to injured investors.
* various remedial measures, including the appointment of an
independent examiner to review Symbol’s accounting practices and internal
control systems and assess the status of remedial actions undertaken or
planned by the company in those and other areas, such as corporate
Dean has also agreed, without admitting or denying the allegations, to the
imposition of the non-monetary relief sought by the Commission.
Specifically, he has agreed to a permanent injunction against committing, or
aiding and abetting, future violations of the antifraud, reporting, books
and records and internal controls provisions of the federal securities laws.
The Commission’s claims for disgorgement and civil penalties against Dean,
and all of its claims against the other individual defendants, remain
* * *
The Commission’s investigation is also continuing. The Commission
acknowledges the assistance and cooperation of the United States Attorney’s
Office for the Eastern District of New York and the U.S. Postal Inspection
Service in this matter.
# # #
For further information contact:
* Mark K. Schonfeld (646) 428-1650
Associate Regional Director, Northeast Regional Office
* George N. Stepaniuk (646) 428-1910
Assistant Regional Director, Northeast Regional Office
Additional Materials: Litigation Release and Complaint