A Medical Device Daily
The Securities and Exchange Commission last week filed charges against two former executives of SeraCare Life Sciences (Milford, Massachusetts) for their roles in financial fraud at SeraCare during 2005. At that time, the company was based in Oceanside, California, and operated and continues to operate as a supplier and manufacturer of biological products for the biotech and pharmaceutical industries.
The SEC's complaint against Michael Crowley, Jr., the former CEO of SeraCare, filed in San Diego, alleges that he failed to disclose material information in SeraCare's Form 10-Q and earnings release for 1Q05 and during an earnings call with investors. The complaint alleges that Crowley learned the day before these disclosures were made that a major customer had cancelled a bill and hold sale representing almost 11% of SeraCare's quarterly net income before taxes.
Crowley failed to disclose the cancelled sale in any of the company's first quarter disclosures, including the quarterly report that he signed and certified, an earnings release, and an investor conference call, the SEC said.
The SEC also filed a separate complaint against Jerry Burdick, a former member of SeraCare's board and the former interim CFO, alleging that in SeraCare's second and third quarters of 2005, he improperly released general inventory reserves that he had created following a major acquisition by the company in 2004. As a result, SeraCare's net income before taxes was artificially inflated in the second and third quarters by 20% and 17%, respectively, and misstated in the corresponding quarterly reports filed by SeraCare that Burdick prepared and/or certified, according to the complaint.
The complaint further alleges that Burdick also caused misrepresentations to SeraCare's outside auditors by creating a backdated letter that was given to the auditors in order to recognize revenue on an almost $1 million sale before the close of the FY05. Finally, the SEC's complaint alleges that Burdick misled SeraCare's auditors by providing them an increased inventory valuation without any documented or verifiable support.
Crowley and Burdick each agreed to settle the SEC's charges without admitting or denying the allegations in the complaint. These settlements are subject to approval by the court. Crowley agreed to pay a civil penalty of $25,000 and will be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act of 1933 and Rule 13a-14 of the Securities Exchange Act of 1934, and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13.
Burdick agreed to pay a civil penalty of $25,000 and also agreed to be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act and Rules 13a-14, 13b2-1, and 13b2-2 of the Exchange Act, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13. Burdick, a certified public accountant, also agreed to a one year suspension from appearing or practicing before the SEC as an accountant under Rule 102(e) of the SEC's Rules of Practice.