SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16344 / October 28, 1999
Accounting Auditing and Enforcement Release No. 1197 / October 28,
1999
S.E.C. v. ABS INDUSTRIES, INC., et al., (N.D. OH., CASE NO. 1
99CV2600, FILED OCTOBER 27, 1999)
On October 27, 1999, the Securities and Exchange Commission (SEC)
filed an action charging that ABS Industries, Inc. (ABS), an Ohio
company, and four former officers or employees of ABS defrauded
investors in the company's stock by intentionally overstating the
company's revenues by millions of dollars in 1994 and the first three
quarters of the company's 1995 fiscal year. Specifically, the SEC
filed a complaint in the United States District Court for the Northern
District of Ohio, Eastern Division, against ABS, formerly
headquartered in Willoughby, Ohio, William J. McCarthy (McCarthy) of
Ashtabula, Ohio, Theodore Ursu III (Ursu) of Highland Heights, Ohio,
John M. McHale (McHale) of Massillon, Ohio, and David R. Bush (Bush),
of Malvern, Ohio. ABS was formerly the holding company for two
wholly-owned subsidiaries, Colfor, Inc. (Colfor) and Colmach, Inc.
(Colmach), which produced and machined cold and warm forgings for the
automotive and light truck industries. McCarthy was the President and
Chief Executive Officer of ABS. Ursu was ABS' Chief Accounting Officer
and Corporate Controller. McHale was the Controller for Colfor and
Colmach, and Bush was Colfor's general manager.
This case involves misstatements arising from an intentional scheme by
ABS' management to manage earnings. The SEC's Complaint alleges that
ABS, McCarthy, Ursu, McHale and Bush engaged in a scheme to
prematurely recognize revenue by improperly recording purported "bill
and hold" sales at ABS. The Complaint further alleges that the sales
recorded as "bill and hold" sales were for goods that were neither
billed nor shipped to the customers, and, in some cases, did not exist
or were not completely manufactured. The Complaint further alleges
that the reason the Defendants engaged in this scheme was to meet
prior sales projections established by McCarthy. For example, the
Complaint alleges that the Defendants improperly recorded nearly $4.5
million in "bill and hold" sales in 1994 to meet McCarthy's projection
in ABS' 1993 annual report that the company's sales would increase to
"approximately $93,000,000" in 1994. As a result of the inclusion of
the improper "bill and hold" sales, ABS posted sales of more than
$92.1 million in its 1994 Form 10-K, which overstated, among other
things, its sales by at least 3.21%, income before taxes by at least
2.48%, and accounts receivable by at least 16.35%. The Complaint
alleges that reasonable investors would have considered such
SNIPPETS:
On October 27, 1999, the Securities and Exchange Commission filed an action charging that ABS
ABS was formerly the holding company for two wholly-owned subsidiaries, Colfor, Inc. and
Ursu was ABS' Chief Accounting Officer and Corporate Controller.
McHale was the Controller for Colfor and Colmach, and Bush was Colfor's general manager.
The SEC's Complaint alleges that ABS, McCarthy, Ursu, McHale and Bush engaged in a scheme to
The Complaint further alleges that the reason the Defendants engaged in this scheme was to
For example, the Complaint alleges that the Defendants improperly recorded nearly $4.5
As a result of the inclusion of the improper "bill and hold" sales, ABS posted sales of more
The Complaint alleges that reasonable investors would have considered such differences - in
ABS also failed to disclose a material change in accounting policy and misrepresented the
The Complaint also alleges the Defendants lied to ABS' auditors regarding the true nature of
These misstatements resulted in the company reporting gains when it otherwise would have
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