U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19110 / March 2, 2005
Accounting and Auditing Enforcement
Release No. 2194
Securities and Exchange Commission v. Sandra Miller Christie, Case No. 05 CV 0420 JM (JFS) (S.D. Cal.)
SEC CHARGES FORMER VICE PRESIDENT OF ADVERTISING AT ADVANCED MARKETING SERVICES, INC. WITH SCHEMES TO INFLATE ADVERTISING EARNINGS
The Securities and Exchange Commission today announced the filing of civil charges against Sandra Miller Christie for her participation in schemes to improperly inflate the earnings of Advanced Marketing Services, Inc. (AMS). AMS is a San Diego-based wholesaler of general interest books that provides a variety of other services, including promotional and advertising services. Christie, age 50, of Palm Springs, California, was vice president of advertising at AMS from 1997 through 2004.
The SEC's complaint, filed today in federal court in San Diego, alleges that Christie participated in schemes to improperly manipulate AMS's earnings. These schemes were carried out primarily through AMS's advertising department. The complaint alleges that the fraudulent schemes caused AMS to overstate its pre-tax earnings by about 9% in fiscal year 2001, 10% in fiscal year 2002, and 19% in fiscal year 2003.
The complaint alleges that AMS fraudulently overstated its earnings through two schemes. An advertising service that AMS provides to publishers is to print and mail advertising vehicles - such as inserts, catalogs, and post-cards - for books the publishers produce. The first scheme alleged by the complaint involved the improper recognition of revenue on more advertising vehicles than AMS had in fact produced. As a result, AMS recorded revenue for these services contrary to generally accepted accounting principles, and thereby improperly overstated its earnings.
The complaint further alleges that Christie participated in a scheme to increase AMS's income by improperly reversing certain accrued liabilities relating to retail cooperative advertising. AMS recorded liabilities for credits that it expected retailers to take for certain advertising and promotional services that the retailers provided. When the retailers did not take the credits due to them, instead of contacting the retailers and reconciling amounts, Christie directed advertising and sales personnel to hide the discrepancies from the retailers, so that AMS could improperly reverse the liability and thereby decrease expenses and increase its income.
Christie profited from her participation in the fraudulent schemes from her receipt of annual bonuses and sales of AMS stock, which totaled more than $72,000.
The complaint alleges that Christie violated the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), aided and abetted the periodic reporting requirements (Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder), aided and abetted the record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder), and violated the books and records provisions (Section 13(b)(5) of the Exchange Act). The SEC seeks a permanent injunction, disgorgement of all ill-gotten gains plus prejudgment interest, a civil penalty, and an officer and director bar against Christie.
The SEC previously filed a complaint in federal court in San Diego against Marcy Wilson Roke, the former director of advertising at AMS, for her participation in schemes to improperly inflate the earnings of AMS. That action is pending.
The SEC acknowledges the cooperation and assistance of the United States Attorney's Office for the Southern District of California and the Federal Bureau of Investigation in this matter.
The SEC's investigation is continuing.
http://www.sec.gov/litigation/litreleases/lr19110.htm
