Two former IEC Electronics executives have settled charges that they used false inventory accounting to meet the company’s profit targets.
The U.S. Securities and Exchange Commission on Wednesday said Donald Doody, IEC’s former vice president of operations, and Ronald Years, the former controller of an IEC subsidiary, engaged in misconduct related to the subsidiary’s work-in-process inventory (WIP).
As a result, the SEC said in an administrative order, IEC filed false financial statements for the third quarter and full year of 2012 and the first quarter of 2013.
To settle the charges, IEC agreed to pay a $200,000 penalty, Doody agreed to pay $29,204.48 in disgorgement and interest plus a $25,000 penalty, and Years agreed to pay a $40,000 penalty.
“Company executives cannot use false accounting tactics to meet profit margins and other financial targets and expect to get away with it,” Michele Layne, director of the SEC’s Los Angeles regional office, said in a news release. “Doody and Years made an ill-fated decision to pump up the numbers in financial statements relied upon by investors.”
IEC’s Southern California Braiding subsidiary manufactured custom cables and wire harnesses for the aerospace and defense industries. Its inventory consisted mainly of raw material and WIP.
According to the SEC, Years failed to implement an adequate system of internal accounting controls for WIP and, at the end of the third quarter of 2012, both he and Doody started inappropriately inflating WIP to meet SCB’s budgeted gross profit margins.
“Years made false accounting entries into a WIP spreadsheet
that Years prepared, and these entries were based in part on amounts provided by Doody to Years that were false,” the SEC said. “Years and Doody also kept material in WIP that had already been used and added inventory to WIP that was missing.”
IEC’s former chief executive William “Barry” Gilbert was not accused of any wrongdoing but has returned $42,072 in incentive-based compensation and stock sale profits as well as 19,616 shares of company stock under the clawback provision of the Sarbanes-Oxley Act.
IEC sold Southern California Braiding to a private company in July 2015.