U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19172 / April 6, 2005
Accounting and Auditing Enforcement
Release No. 2223 / April 6, 2005
Securities and Exchange Commission v. Drew S. Levin, Noel Cronin, and Michael Macchiarella, Civil Action No. 05-2547 NM (RCx) (C.D. Cal.) (April 6, 2005)
In the Matter of John D. Clutten, Administrative Proceeding File No. 3-11884
SEC CHARGES DREW S. LEVIN, FORMER CEO OF TEAM COMMUNICATIONS GROUP, INC. AND TWO OTHERS WITH FRAUD; AND A THIRD FOR CAUSING FRAUD.
On April 6, 2005, the Securities and Exchange Commission filed fraud and other charges against Drew S. Levin, Noel Cronin, and Michael Macchiarella for a financial fraud conducted at Team Communications Group, Inc. The Commission also instituted a related administrative action against John D. Clutten.
The compliant, filed in the United States District Court for the Central District of California, alleges that a financial fraud took place at Team from approximately 1999 through 2001 and that there were two major components of the fraudulent scheme. The first component involved improperly accounting for "circular" sales transactions between Team and certain other companies, including companies controlled by Cronin. The second component of the scheme involved non-binding, "minimum-guarantee" distribution contracts. Under these contracts, Team improperly recognized minimum-guaranteed revenue (specified in the terms of those contracts) even though the counter-parties were assured that the minimum-guarantee numbers would not be enforced. In fact, in most or all cases, the minimum-guarantee contractual obligations were voided by undisclosed side-letter agreements.
The complaint also alleges that the fraudulent scheme resulted in material misstatements and omissions in Team's periodic reports filed with the Commission and other public statements related to the company's fiscal years 1999 and 2000 (Team's fiscal year ended on 12/31). For example, the circular and minimum-guarantee transactions caused Team to report in its filings with the Commission materially misstated revenue, income, and assets for the periods ended 12/31/1999, 3/31/2000, 6/30/2000 and 9/30/2000.
The complaint further alleges that Levin, Team's former Chief Executive Officer and Chairman of the Board, was the architect of the scheme and personally oversaw and directed its execution. Levin's scheme was accomplished with the assistance of Cronin and Macchiarella. During the relevant time period, Cronin was the head of Team's United Kingdom subsidiary, known as Team Dandelion. Cronin and other companies in which he had an ownership interest were involved in the circular and minimum-guarantee transactions. Macchiarella purportedly owned a film distribution company, which was not affiliated with Team and which entered into a guaranteed-minimum with Team. Levin and Macchiarella made false statements to Team's auditors about Macchiarella's company and the contract. In its administrative action against Clutten, the Commission alleges that Clutten was involved with the guaranteed-minimum contracts.
Cronin has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a judgment (a) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, and (b) prohibiting him from acting as an officer or director of a public company for five years.
Macciarella has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a judgment (a) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and13b2-2 thereunder, and (b) requiring him to pay disgorgement of $25,000 plus prejudgment interest and a $25, 000 civil penalty.
Clutten has agreed to settle the Commission's administrative action by consenting to the entry of an order, without admitting or denying the findings in the order, directing him to cease and desist from (1) committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and (2) causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
The Commission will litigate the case against Levin. The Commission's complaint alleges Levin violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and aided and abetted violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Commission seeks an injunction against future violations of these provisions, an order prohibiting him from acting as an officer or director of a public company, disgorgement of all unlawful gains and prejudgment interest, and a civil monetary penalty.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr19172.htm
