Problem
SEC Charges Executives and Director with Lying to Auditors
Litigation Release No. 25517 / September 23, 2022
Accounting and Auditing Enforcement Release No. 4341 / September 23, 2022
On September 22, 2022, the Securities and Exchange Commission filed charges against the former Chief Executive Officer of Spyr, Inc., James R. Thompson, the company's former Chief Financial Officer, Barry D. Loveless, and director, James A. Mylock, Jr., for making false and misleading statements to Spyr's auditors. The SEC also charged Thompson and Loveless for filing periodic reports with the SEC that failed to include required information in the financial statements.
According to the SEC's complaint, filed in the United States District Court for the District of Nevada, Thompson, Loveless, and Mylock provided Spyr's auditors with false and misleading information about an SEC investigation into Spyr's investment in a biotechnology company. The SEC alleges that the defendants told Spyr's auditors that they were not aware of "any situations where the company may not be in compliance with any federal or state laws or government or other regulatory body regulations," even after Spyr had received a Wells notice, settlement discussions with SEC staff had broken down, and management believed that an SEC action would be filed soon. The complaint also alleges that Thompson and Loveless signed Spyr's 2017 Form 10-K and 2018 first quarter Form 10-Q, neither of which disclosed the potential SEC enforcement action. According to the complaint, Spyr was required by generally accepted accounting principles to disclose the potential SEC enforcement action because it was reasonably possible that it could lead to a material loss for the company.
The SEC's complaint charges each of the defendants with lying to auditors and thereby violating Rule 13b2-2 of the Securities Exchange Act of 1934, and charges Thompson and Loveless with violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933, and aiding and abetting Spyr's violations of the reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, and 13a-13 thereunder. Without admitting or denying the SEC's allegations, Thompson, Loveless, and Mylock consented to the entry of final judgments, subject to court approval, permanently enjoining them from violating the charged provisions; requiring Thompson, Loveless, and Mylock to pay civil penalties of $50,000, $75,000, and $10,000, respectively; and barring Thompson and Loveless from acting as an officer or director of any public company for three years.
The SEC's investigation was conducted by Matthew L. Skidmore and Michael F. D'Angelo with the assistance of Christopher E. Martin. The investigation was supervised by Mary S. Brady and Jason J. Burt.
Answer the following questions
1. Who is the company (or business person), what does it do (that is, what industry is the company/person in)?
2. How did the company violate the law?
3. What harm (think BIG picture) resulted from the illegal activity?
4. What is the punishment if known at this time?
5. What are your thoughts on this case, the level of punishment, and your reactions overall to this behavior?