Customer Relations Gone Wild

An ex-CFO of Terex is accused of helping a customer, United Rentals, commit a fraud involving sale-leaseback transactions.

The Securities and Exchange Commission has filed civil charges against Joseph Apuzzo, the former CFO of Terex Corp., for allegedly helping a customer, United Rentals, in an accounting fraud scheme.

Apuzzo is the second CFO charged in the matter. On December 12 the SEC settled financial fraud charges against Michael Nolan, a former CFO of United Rentals.

The commission alleges that Apuzzo aided and abetted a fraud committed by United, Nolan, and others that involved two sale-leaseback transactions between 2000 and 2002.

The transactions, according to the SEC, were designed to boost United’s 2000 and 2001 financial results by recognizing revenue prematurely and inflating the profit generated from the sales.

Apuzzo is said to have signed agreements with United that he knew or was reckless in not knowing were designed to hide the company’s continuing risks and financial obligations relating to the sale-leaseback transactions. He also allegedly directed or approved inflated invoices that he knew would be used to inflate URI’s gain on the transactions.

The commission is seeking to impose on Apuzzo an officer and director bar, disgorgement plus prejudgment interest, and civil penalties.

Apuzzo was promoted to CFO of Terex in 1999. Earlier in his career, he spent 10 years with PricewaterhouseCoopers.

Nolan pleaded guilty last month to criminal charges that he made false filings with the SEC. He faces up to 10 years in prison and a $22 million fine. He also must pay restitution of about $11 million.

Despite his guilty plea in the criminal case, Nolan followed the usual strategy in civil cases by settling SEC fraud charges without admitting or denying guilt. He agreed to a permanent officer and director bar, and to disgorgement and prejudgment interest in amounts to be determined later.

Terex, a diversified manufacturer, disclosed in August 2005 that the SEC had opened an investigation into its previously announced restatement of its financials for the years 2000 through 2003. The errors mainly involved how the company booked and reconciled intercompany imbalances and its failure to eliminate accounts during consolidation.

In the same regulatory filing, Terex had noted that the SEC issued a subpoena for documents concerning transactions in 2000 and 2001 between the company, its subsidiaries, and United Rentals.

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