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SEC Files Civil Injunctive Action Against Robert Korkuc of Symbol Technologies, Inc.4 min read

The Commission filed a civil injunctive action in federal court in
Brooklyn, New York charging Robert Korkuc, former Chief Accounting
Officer of Symbol Technologies, Inc. (Symbol), with engaging in a vast
fraudulent scheme to manipulate Symbol’s reported financial results.
Based in Holtsville, New York, Symbol is a leading manufacturer of bar
code scanners and related information technology whose stock is publicly
traded on the New York Stock Exchange. The complaint alleges that
Korkuc and others rigged the financial results that Symbol reported in
press releases and periodic reports filed with the Commission by
manipulating millions of dollars in revenue, net income and other
measures of financial performance from 1998 through 2002. Korkuc, age
40, was Director of Corporate Accounting at Symbol before becoming Chief
Accounting Officer in July 2000. Symbol announced his resignation in
March 2003.
The Commission’s complaint alleges that:
Among other fraudulent accounting practices, Korkuc and others
manipulated reserves and made other improper adjustments to Symbol’s raw
financial data to conform the reported results to market expectations.
Korkuc made or oversaw dozens of fraudulent entries on Symbol’s
accounting records that boosted net income and otherwise enhanced the
results by tens of millions of dollars. Throughout the relevant period,
Korkuc and others prepared schedules, known within Symbol as “Tango
sheets,” that compared each quarter’s raw consolidated results to
management’s forecasts. The Tango sheets described adjustments to
reserves and other items that eliminated shortfalls and otherwise rigged
the reported results. Korkuc distributed the Tango sheets to members of
senior management and then adjusted the raw results according to their
instructions. These adjustments grossly violated generally accepted
accounting principles.
When making these improper “topside” adjustments, Korkuc knew that the
raw results were already inflated because of fraudulent revenue
recognition practices and similar misconduct. Korkuc played a role in
some of these other fraudulent practices, including paying resellers to
secure their assistance in Symbol’s channel stuffing schemes and
recognizing sales revenue before the product was even shipped. Korkuc
also played a role in efforts to perpetuate and conceal the fraud. He
was involved in obtaining phony “bill and hold” letters to disguise
premature revenue recognition, reclassifying past due trade receivables
into undisclosed notes receivable to hide the adverse effects of channel
stuffing on cash collection, and making fictitious general ledger
entries to obscure earlier Tango sheet adjustments. After the
Commission began its investigation, Korkuc and others took additional
steps to conceal important elements of the fraud from Symbol’s outside
counsel and the government.
As a result of these and other fraudulent practices, Symbol materially
overstated its revenue and net income in press releases and periodic
reports filed with the Commission and disseminated to the public from
1998 through 2002. Symbol is in the process of restating these
financial results. According to Symbol’s public disclosures, the
restatement will include changes in reserves and reductions in revenue
and net income during the period that Korkuc was involved in the fraud.
Symbol’s disclosures about the need for a restatement arise from an
internal investigation into the company’s financial reporting practices
that began in the spring of 2002 at the request of the Commission’s
staff.
In the complaint, the Commission seeks a permanent injunction enjoining
Korkuc from: (i) committing securities fraud in violation of Section
17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of
the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; (ii)
falsifying corporate books and records, circumventing internal controls,
making false and misleading statements to accountants, and engaging in
other conduct in violation of Section 13(b)(5) of the Exchange Act and
Rules 13b2-1 and 13b2-2; and (iii) aiding and abetting Symbol’s
violations of corporate reporting, recordkeeping and internal control
provisions of the Exchange Act (Sections 13(a) and 13(b)(2) and Rules
12b-20, 13a-1 and 13a-13). The Commission also seeks an order: (i)
requiring Korkuc to disgorge, and pay prejudgment interest on, his ill-
gotten gains; (ii) imposing civil money penalties; and (iii) barring
Korkuc from acting as an officer or director of a publicly traded
company.
This is the second enforcement action the Commission has brought as a
result of its investigation into Symbol’s financial reporting. On March
25, 2003, the Commission brought a civil action against Robert Asti, a
former sales finance executive at Symbol, alleging that Asti committed
securities fraud and other violations (SEC v. Robert Asti, 03 Civ. 1417,
LDW, EDNY, March 25, 2003, LR-18050). [SEC v. Robert Korkuc, CV 03
3016, WEXLER. EDNY] (LR-18194; AAE Rel. 1803)
SEC News Digest Issue 2003-117