U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19108 March 1, 2005
Accounting and Auditing Enforcement
Release No. 2193 / March 1, 2005
SECURITIES AND EXCHANGE COMMISSION V. HUMATECH, INC., DAVID G. WILLIAMS, AND JOHN D. ROTTWEILER, Defendants, Civil Action No. H-05-0665 (U.S.D.C./S.D. TX)(Houston Division)
SEC CHARGES HUMATECH, INC. AND ITS CEO AND CFO IN ACCOUNTING-FRAUD SCHEME
On February 28, 2005, the Securities and Exchange Commission filed a civil securities-fraud case in the United States District Court for the Southern District of Texas (Houston Division) against Humatech, Inc., and its CEO, David G. Williams, 55, and CFO, John D. Rottweiler, 60. Humatech is a fertilizer and animal-feed additive company whose common stock trades under the ticker symbol HUMT on the OTC Bulletin Board. At the time of the alleged violations, Humatech was based in Houston, Texas. The SEC charged Williams and Rottweiler with financial fraud and other securities-law violations related to a bogus revenue-recognition scheme that materially inflated Humatech's assets and revenue from 2000 through 2002.
According to the SEC's complaint, in January and October 2000, Humatech improperly recorded two sales totaling $297,640 to Humatech Ltd., a United Kingdom distributor that Williams and Rottweiler secretly controlled. These purported sales, however, were contingent on the distributor reselling the product to a U.K. purchaser. The distributor did not resell the product, and, consequently, Humatech failed to ship the products to the U.K. Given the contingent nature of the transactions, they did not qualify for revenue recognition under generally accepted accounting principles.
As a result of the improper revenue recognition, Humatech materially overstated its revenue or assets or both in each quarterly and annual SEC report from January 31, 2000, through the quarter ended October 31, 2002. For example, the initial sale, in the amount of $277,640, represented 100% of the company's revenue for the third quarter of fiscal year 2000. And accounts receivable relating to the initial improper sale comprised approximately 63% of the company's assets in the same quarter and approximately 42% of the assets reported in Humatech's annual report for fiscal year 2000. Further, the company's SEC reports, which were also incorporated by reference in five SEC registration statements, never properly disclosed the related-party nature of the two purported sales.
On February 13 and 24, 2003, Humatech issued restatements for each reporting period from January 31, 2000, through the quarter ended October 31, 2002. The restatements reduced revenue by $277,640 in fiscal year 2000 and by $20,000 in fiscal year 2001 and wrote off related assets in those periods. Likewise, the restatements wrote off related assets for fiscal year 2002 and for the first and second quarters of fiscal year 2003. The company, however, did not disclose that, from the outset, delivery and payment on these purported sales were contingent upon resale of the product by Humatech Ltd. Instead, the amended filings falsely stated that an epidemic of foot-and-mouth disease in U.K. cattle herds interrupted ongoing delivery of the product. In reality, the foot-and-mouth epidemic, which began in February 2001, occurred over a year after the first purported sale, and none of the product had been delivered before the outbreak.
The SEC's complaint against Williams, Rottweiler, and Humatech, alleges violations of the anti-fraud, issuer-reporting, books-and-records, internal-controls, officer-certification, and lying-to-auditor provisions of the federal securities laws-specifically, Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2 thereunder. The SEC is seeking permanent injunctive relief against each defendant and a civil money penalty, an officer-and-director bar, an accounting, and disgorgement plus prejudgment interest against Williams and Rottweiler.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr19108.htm
