This story has been updated to reflect that the consent decree with the Securities and Exchange Commission signed by Richard Fresia, former CFO of Expanets Inc., did not contain any accounting fraud charges. In a previous version of this article, and its headline, it was incorrectly stated that fraud charges were involved. CFO.com regrets the error.
The Securities and Exchange Commission said it has settled charges with Richard Fresia, former CFO of Expanets Inc., which once was a telecommunications subsidiary of energy concern NorthWestern Corp.
Fresia consented to entry of a judgment without admitting or denying the allegations in the complaint. According to the SEC, during the second and third quarters of 2002 Fresia participated in concealing from the public Expanets’ ongoing operational problems and poor financial performance.
The complaint alleged that Fresia knew that Expanets improperly accounted for accounts receivable and adjustments to customers’ bills, causing NorthWestern to overstate reported income from continuing operations by 90 percent and 109 percent in the second and third quarters of 2002, respectively.
The complaint further alleged that Fresia participated in NorthWestern’s failure to disclose the nature of Expanets’s reported income during the second and third quarters of 2002, including the magnitude of Expanets’ reserve reductions and its receipt of unusual non-compete payments.
The SEC claimed that Fresia’s conduct helped facilitate more than $800 million in securities offerings by NorthWestern in September and October 2002, including the raising of about $87.5 million in an equity offering that provided NorthWestern with badly needed operating capital. Two months later, NorthWestern disclosed a $50 million charge for uncollectible accounts receivable. The following year, NorthWestern declared bankruptcy.
When he was charged last July, Fresia told CFO.com that he was making a good-faith effort to straighten out a serious ERP problem. In fact, he said, he sent “E-mail after E-mail” and other information to the parent company. He insisted at the time he was not responsible for publicly reporting the financials, and unsuccessfully petitioned NorthWestern’s controller to disclose the computer problems in the parent company’s second-quarter report.
He also said he eventually turned over a thick binder of E-mails, time lines, and other information to the SEC, and was startled when the regulator decided to charge him.
“For the first two years of this, I thought I was going to be the [SEC's] star witness,” he told CFO.com. “I was more surprised than anyone when they turned on me as well.”
Fresia joined Expanets in April 2002 as part of a new management team — which also included a CEO and CIO — hired by NorthWestern, he said, to “come in and get things straight” after it became clear that the company’s ERP system was not working properly. He left Expanets in 2003.