SEC Charges 2 Top OCZ Executives

In the complaint, the SEC alleges that OCZ’s former CEO Ryan Petersen engaged in a scheme to materially inflate OCZ’s revenues and gross margins from the years 2010 to 2012. The regulatory agency separately charged OCZ’s former chief financial officer Arthur Knapp for certain accounting, disclosure, and internal accounting controls failures at OCZ.

This breaks down to the SEC charging Petersen with violating the antifraud, certification, books and records, internal controls, and clawback provisions of the federal securities laws.  It also charged him with lying to accountants and aiding and abetting OCZ’s violations of the reporting, books and records and internal controls provisions.

Apart from this, the SEC charged Knapp with violating certain antifraud provisions, and the certification, and internal controls provisions, and with aiding and abetting OCZ’s violations of the reporting, books and records, and internal controls provisions.

Knapp has agreed to settle the SEC’s charges without admitting or denying the allegations against him.  The SEC’s litigation continues against Petersen.

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, said:

CEOs and CFOs are responsible for reporting accurate financial information. When those high-level executives participate in accounting fraud and failures, as we allege Petersen and Knapp have done, they will be held accountable.

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The SEC highlighted a few allegations in its release:

• Petersen’s scheme included mischaracterizing sales discounts as marketing expenses and having employees create false documentation to conceal the scheme, channel-stuffing OCZ’s largest customer by shipping more goods than the customer could sell in the normal course of business, and concealing large product returns from OCZ’s finance department and OCZ’s auditor so that those returns would not be recorded in OCZ’s books and records.
• OCZ filings that Petersen signed and certified portrayed the company in a way that was a far cry from its true operational and financial condition.
• Petersen personally profited from his misstatements by selling shares of OCZ stock and receiving a bonus during the period when OCZ’s public filings contained inflated financial results.
• Knapp instituted or maintained policies that caused OCZ to record transactions in a manner that was not in accordance with U.S. generally accepted accounting principles.  These policies included reclassifying costs of goods sold as research and development expenses without sufficient basis for doing so, failing to capitalize labor and overhead costs in OCZ’s inventory costs, recognizing revenues upon product shipment rather than upon delivery of the product to OCZ’s customers, and understating OCZ’s accruals for product returns.
• As CFO, Knapp had responsibility for OCZ’s internal accounting controls and procedures.  Nevertheless, he failed to implement sufficient internal accounting controls to prevent OCZ from misclassifying sales discounts as marketing expenses and significantly overstating its revenues and gross profits.