Federal regulators said they are considering how much they will ask a federal judge to penalize the last Brightpoint executive to be found guilty of an accounting scheme that involved his company and American International Group.
Convicted Friday in Manhattan U.S. District Court for his role in an illicit transaction involving finite reinsurance was Timothy Harcharik, the former director of risk management for Brightpoint.
Mr. Harcharik was tried on civil charges brought by the Securities and Exchange Commission. Two other executives of the Plainfield, Ind.-based wireless phone distributor entered guilty pleas in the case.
The case, going back to 1998, charges that Brightpoint and American International Group schemed to cover up a loan as an insurance contract to make Brightpoint's earnings look better than they were, concealing $12 million in losses.
Mr. Harcharik, the SEC said, was the first case to go to trial for the alleged abuse of finite reinsurance contracts. He was charged with concocting the scheme and was found guilty after a four-day trial before U.S. District Court Judge Harold Baer Jr.
David Stoelting, senior trial counsel for the SEC, said the regulator would seek injunctive relief barring Mr. Harcharik from violating securities laws as well as a civil monetary penalty, but will not seek to bar him from working in the industry. Mr. Stoelting said the recommended amount has not been determined, but it would ultimately be up to Judge Baer to decide. A hearing is expected sometime in June, he said.
In a settlement of the Brightpoint case announced in 2003, AIG paid the SEC a $10 million civil penalty while admitting no wrongdoing. AIG was also forced to disgorge, with interest, the $100,000 fee Brightpoint paid to AIG for placing the contract.
Brightpoint paid a civil penalty of $450,000.
Two other Brightpoint executives–Philip Bounsall, former chief financial officer, and John Delaney, former chief accounting officer–paid civil penalties of $45,000 and $100,000, respectively.
According to court documents, Mr. Harcharik was the subject of criminal prosecution by the U.S. Attorney in the Southern District of Indiana, but that case was dropped in 2006 by the prosecutor's office for lack of proper venue.
After the verdict, Mark K. Schonfeld, director of the SEC's New York Regional Office, issued a statement saying: "I am gratified with this result. Cracking down on the abuse of so-called finite insurance and reinsurance to cook the books of public companies has been a priority for us. This verdict makes clear that such conduct is fraud, plain and simple."
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