SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17564 / June 14, 2002
Accounting and Auditing Enforcement Release No. 1577 / June 14, 2002
SEC Settles Charges against John Daws for His Involvement in Financial
Reporting Fraud at Cylink Corporation
Securities and Exchange Commission v. John Daws, Thomas Butler and
Mark Folit, United States District Court for the Northern District of
California, Civil Action No. C 01-3362 VRW
The Securities and Exchange Commission announced that on May 15, 2002,
the Honorable Vaughn Walker, United States District Judge for the
Northern District of California, issued a Final Judgment of Permanent
Injunction and Other Relief against John H. Daws, the former Chief
Financial Officer of Cylink Corporation.
Without admitting or denying the Commission's allegations, Daws
consented to the entry of a final judgment that permanently enjoins
him from violating the antifraud provisions (Section 10(b) of the
Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5
thereunder); from circumvention of Cylink's internal controls and
falsification of records (Section 13(b)(5) of the Exchange Act and
Rule 13b2-1 thereunder); from making misrepresentations or material
omissions to accountants (Rule 13b2-2); and from aiding and abetting
Cylink's violations of the periodic reporting and books and records
provisions (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and
Rules 12b-20, 13a-1 and 13a-13 thereunder).
In addition, the final judgment orders him to disgorge ill-gotten
gains which he had received in the form of a performance bonus of
$30,000, to pay prejudgment interest and to pay a civil penalty of
$100,000.
The Commission's complaint, filed on September 27, 2000, alleged that
in order to meet Cylink's ambitious revenue goals, Daws, in
conjunction with other former Cylink officers, led the Company to
recognize revenue on numerous transactions that violated Cylink's own
revenue recognition policy, generally accepted accounting principles,
or both, for the fourth quarter of 1997 and the first two quarters of
fiscal 1998.
The complaint alleges that in the fourth quarter, Daws directed that
Cylink improperly recognized revenue for Cylink's wireless division on
a $3.7 million shipment to a warehouse in which the transaction was
not final because Cylink's customer had failed to provide a letter of
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Accounting and Auditing Enforcement Release No. 1577 / June 14,
SEC Settles Charges against John Daws for His Involvement in Financial Reporting Fraud at
Securities and Exchange Commission v. John Daws, Thomas Butler and Mark Folit, United States
The Securities and Exchange Commission announced that on May 15, 2002, the Honorable Vaughn
Without admitting or denying the Commission's allegations, Daws consented to the entry of a
e periodic reporting and books and records provisions and 13of the Exchange Act and Rules 12b-20,
In addition, the final judgment orders him to disgorge ill-gotten gains which he had received
The Commission's complaint, filed on September 27, 2000, alleged that in order to meet
The complaint alleges that in the fourth quarter, Daws directed that Cylink improperly
Because Cylink sold its wireless division to another company in early 1998, the effect of
Cylink overstated its quarterly revenue by as much as 97.5% during the period of the fraud,
Cylink issued restated financials that sharply reduced its results for the periods in
For the year-ended 1997, Cylink reported revenue of $49.3 million, income from discontinued
Cylink's restatement reduced revenue to $47.7 million, reduced income from discontinued
For the first quarter of fiscal 1998, the Company restated revenue from $15.8 million to $8
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