SIRENA EXECS PLEAD NOT GUILTY
Byline: Kristi Ellis
LOS ANGELES — Maurice “Corky” Newman and Richard Gerhart, two former top executives of Sirena Apparel Group Inc., pleaded not guilty to charges of securities fraud in federal court on Monday.
Newman, former chief executive of Sirena, and Gerhart, former chief financial officer, were indicted on 10 counts of securities fraud and arrested by the FBI last Tuesday.
Newman is out on $100,000 bail and Gerhart, who was reportedly unable to post bail, is still in custody.
A federal magistrate set the trial date for Nov. 21.
Newman and Gerhart are accused of “cooking the books” and attempting a subsequent coverup, according to federal prosecutors and officials of the Securities and Exchange Commission.
The indictment alleges that the two executives conspired to falsely inflate Sirena’s third-quarter revenues by $4.4 million by holding the quarter “open” for as long as was necessary to meet analysts’ estimates.
The case has sparked a war of words between the U.S. attorney’s office and one of Newman’s attorneys.
In an interview after the arraignment, Deborah Klar, an attorney for Newman, accused the U.S. attorney’s office of attempting to fill an alleged quota on securities fraud cases, in light of the fact that the fiscal year has just ended.
She referred to the number of cases announced by federal prosecutors and the SEC at a joint news conference last Wednesday.
Federal prosecutors announced a second indictment of securities fraud against a consumer electronics company at the news conference, while the SEC announced civil actions related to financial accounting and reporting abuses against a total of six companies.
“Given the circumstances that the SEC did not request any kind of [ban on becoming] an officer or director [of a public company in a pending settlement of its civil case against Newman], it is anomalous that criminal charges are being brought in this circumstance,” Klar said. “They [federal prosecutors] are trying to either fill a quota or generate statistics to take to Congress.”
A spokesman for the U.S. attorney’s office vehemently denied Klar’s charges.
“It’s preposterous for anyone to assert that there are any quotas anywhere in the Department of Justice,” he said. “We investigate and select criminal cases for prosecution based solely on the facts of the case and the interests of justice.”
Michael W. Fitzgerald, a criminal attorney representing Newman, also questioned the government’s motives, although he did not directly accuse them of trying to meet a quota.
“We intend to vigorously defend the charges,” said Fitzgerald. “It seems odd that with the set of alleged facts the government would choose to select this case for criminal prosecution.”
Newman and Gerhart also each face a civil action, which were brought by the SEC, alleging financial statement fraud.
Newman has agreed to settle the case with the SEC by consenting to a permanent injunction without admitting or denying the allegations in the complaint, and paying a $30,000 penalty. According to that settlement, Newman would be allowed to serve as an officer or director of a public company. The SEC is awaiting court approval of that settlement.
In its civil case against Gerhart, the SEC is seeking an injunction, civil penalties and an order barring him from serving as an officer or director of a public company. Gerhart has not agreed to settle the case and the SEC is in the position of litigating against him.
Gerhart’s attorney could not be reached for comment.