U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19310 / July 26, 2005

Accounting and Auditing Enforcement
Release No. 2281 / July 26, 2005

Securities and Exchange Commission v. Gary K. Bennett, United States District Court for the District of Columbia, Civil Action No. 1:05CV 01464 (GK)

Securities and Exchange Commission v. Bernard J. Demko, United States District Court for the District of Columbia, Civil Action No. 1:05CV 01465 (CKK)

SEC FILES SETTLED ENFORCEMENT ACTIONS AGAINST GARY K. BENNETT, BERNARD J. DEMKO AND MICHAEL J. CHESHIRE

The Securities and Exchange Commission today announced the filing of complaints in the United States District Court for the District of Columbia against Gary K. Bennett and Bernard J. Demko. The Commission charged Bennett and Demko with violating the antifraud provisions of the federal securities laws for engaging in misconduct that led Gerber Scientific, Inc. to improperly exclude a $1.5 million charge from its financial results when the company filed its Form 10-K for the fiscal year ended April 30, 2000. At the time, Bennett was the company's Chief Financial Officer and Demko was its Controller. Bennett was also charged with improperly maintaining and using certain corporate reserves in 1998 and 1999.

The complaints allege that in June 2000, while Gerber was finalizing its annual report on Form 10-K for fiscal year 2000, Bennett and Demko learned that, due to a clerical error, the company had failed to record approximately $1.5 million of a required $6 million inventory write-down. Instead of correcting the mistake, the company went ahead and filed its Form 10-K, which contained materially inaccurate financial statements and related disclosures. Then, without disclosure, Bennett and Demko sought to eliminate the error by improperly amortizing the $1.5 million charge over the next four fiscal quarters. As a result, Gerber's reported earnings for the fourth quarter of fiscal 2000 were overstated by 100% and reported earnings for the year were overstated by 3.5%. According to the complaint, after discovering the $1.5 million error, Bennett also failed to correct a press release, dated May 25, 2000, that he knew or was reckless in not knowing was materially inaccurate, and he signed a subsequent events letter to the company's auditor that omitted any reference to the error.

With respect to the improper corporate reserves, the complaint alleges that Bennett approved the maintenance and use of corporate-level reserves for which there was no specific contingency. He also approved the establishment and use of a reserve set up in connection with Gerber's sale of a subsidiary for which there was insufficient support. The use of the corporate-level reserves resulted in overstatements of net earnings in both 1998 and 1999, and the use of the reserve relating to the subsidiary sale in 1999 resulted in an increase in Gerber's reported income for that year.

Without admitting or denying the Commission's allegations, Bennett and Demko consented to the entry of final judgments that permanently enjoin them from violating or aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b 20, 13a 1 and 13a 13 thereunder. Bennett also consented to be enjoined from violating Exchange Act Rule 13b2-2 and to be barred from serving as an officer or director of a public company for five years. In addition, Bennett and Demko each agreed to pay a civil penalty of $25,000. The final judgments are subject to Court approval.

In a related enforcement action announced today, the Commission instituted a settled cease-and-desist proceeding against Michael J. Cheshire, who was Gerber's Chief Executive Officer during the relevant time. Cheshire consented to the issuance of the order instituting proceedings without admitting or denying the findings therein, including findings that he was a cause of Gerber's reporting violations. He was ordered to cease and desist from committing or causing violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. (Rel. No. 34-52126: File No. 3-11990).

The Commission previously issued a settled cease-and-desist order against Gerber relating to the same issues. In the Matter of Gerber Scientific, Inc., Exchange Act Release No. 49541 (April 8, 2004).

SEC Complaint in this matter (Gary K. Bennett)

SEC Complaint in this matter (Bernard J. Demko)

http://www.sec.gov/litigation/litreleases/lr19310.htm