U.S. SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 17165 / September 28, 2001

ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1461

Securities and Exchange Commission v. Matthew R. Welch and James C. Horne (United States District Court for the Northern District of Illinois, Civ. No. 00-C-5935)

FORMER OAKGRIGSBY, INC. CONTROLLER ENJOINED, ORDERED TO PAY DISGORGEMENT IN CONNECTION WITH FINANCIAL FRAUD SCHEME

The Securities and Exchange Commission announced today that on September 27, 2001, the Hon. Ronald A. Guzmàn of the United States District Court for the Northern District of Illinois entered an Order enjoining Defendant Matthew Welch from future violations of the antifraud, issuer reporting, books and records and internal accounting controls provisions of the federal securities laws and ordering him to pay disgorgement and prejudgment interest of $21,526, provided, however, that payment of all but $10,000 is waived, and penalties not assessed, based on his demonstrated inability to pay additional amounts. The Commission's enforcement action is the result of Welch's fraudulent scheme to falsify the operating results of OakGrigsby, Inc. to make the company appear more profitable than it was. OakGrigsby, located in Sugar Grove, Illinois, was a division of Oak Industries, Inc., headquartered in Waltham, Massachusetts. In January 2000, Oak, whose shares had been publicly traded on the New York Stock Exchange, was acquired by Corning, Incorporated. Defendant Welch consented to the entry of the injunction and payment of disgorgement without admitting or denying the allegations of the Commission's Complaint.

The Commission's complaint, filed September 27, 2000, alleged that between July 1995 and January 3, 1997, defendants James Horne and Matthew Welch, respectively the former president and controller of OakGrigsby, inflated OakGrigsby's reported operating profits by 108% to 371%. Oak Industries incorporated OakGrigsby's inflated numbers in its periodic reports and press releases and, as a result, Oak Industries' income and earnings per share during this period were overstated in amounts ranging from 2% to 15%.

Specifically, the Complaint alleged that Defendant Welch fraudulently concealed expenses such as salaries, shipping and travel. The Complaint alleged that several of these fraudulent entries were made with the knowledge and approval of Defendant Horne, the divisional president of OakGrigsby until March 1996. OakGrigsby's results were consolidated with other Oak divisions and incorporated into Oak's periodic reports and press releases. As a result of Welch and Horne's actions, Oak's income per share for the quarter ended December 31, 1995 and the quarters ended March 31, June 30 and September 30, 1996 were materially overstated. According to the Complaint, Welch, a Naperville, Illinois resident, and Horne, a Lake Bluff, Illinois resident, inflated reported OakGrigsby's profits toensure that the division met specified earnings targets which allowed Horne and Welch to earn bonuses of $55,000 and $15,000, respectively.

As a result of the conduct described in the Complaint, the Commission charged Welch and Horne with violations of Sections 10(b) of the Securities and Exchange Act of 1934 and Exchange Act Rule 10b-5 thereunder (antifraud provisions) and Exchange Act Rule 13b2-1 (prohibiting falsification of issuer books and records). The defendants are also charged with aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder (issuer books and records and internal accounting controls provisions), and, in addition, Welch was charged with violating Section 13(b)(5) of the Exchange Act (prohibiting knowing falsification of issuer books and records and evasion of internal accounting controls). The Commission's Complaint sought injunctive relief, disgorgement and civil penalties of bonuses received by Horne and Welch, plus prejudgment interest. Welch has been enjoined from future violations of all statutory provisions alleged in the Complaint. The litigation is continuing as to Defendant Horne. For further information, see Litigation Release No. 16734 (September 27, 2000).