SEC v. Terex Corporation, Civil Action No. 21177 (D. Conn. Filed Aug. 12, 2009) is one of a series of cases filed by the Commission centered on a financial fraud involving Terex Corporation, a global manufacturer of heavy equipment, and United Rentals, Inc., a large equipment rental company. While the accounting here is clearly incorrect based on the Commission’s claims, it is also true that the case is ancient history. In view of the current emphasis on streamlining enforcement, perhaps it represents an effort to clean up old inventory rather than the new and revived enforcement program.

The action against Terex alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a) and 13(b)(2)(A), along with the pertinent rules. The complaint centers on two sets of transactions. First, it alleges that Terex aided and abetted a financial fraud at United Rentals in two year end sale-leaseback transactions used to falsely inflate the revenue of each company. In each transaction, United Rentals sold used equipment to a financing company and then leased it back for a period of time. In connection with this transaction Terex agreed to sell the equipment at the end of the lease period and guaranteed the financing company against any loss. Bringing the transaction full circle, United Rentals then guaranteed Terex against loss on its guarantee. United Rentals improperly recognized the revenue from the transactions to ensure it made it year end numbers. Former Terex CFO Joseph Apuzzo agreed to the transactions to fraudulently enhance the financial results at Terex.

Second, the Terex accounting staff failed to resolve certain imbalances arising from the improper accounting of the company regarding certain inter-company transactions. Rather than investigating and correcting the imbalances, Terex created unsupported and improper entries for the pertinent accounts resulting in costs not being recorded as expenses. In the end, these improper entries caused the company to appear to be more profitable that the actual results.

Terex agreed to resolve the case by consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. It also agreed to pay an $8 million penalty. In resolving this case the Commission did not impose any remedial procedures on the company. Since the wrongful conduct occurred over eight years ago, there was little need of assurances against future replication — the passage of time did that. Indeed, in view of the stale nature of the claims, the necessity for an injunction prohibiting future violations is questionable at best. See also Lit. Rel. 21177 (Aug. 12, 2009).

Previously, the Commission and the U.S. Attorney’s Office filed related cases. Those include: SEC v. United Rentals, Inc., Civil Action No. 3:08-cv-1354 (D. Conn. Filed Sept. 8, 2008) (settled financial fraud case in which the company consented to a permanent injunction and agreed to pay a $14 million penalty), See also Lit. Rel. 20706 (Sept. 8, 2009); SEC v. Nolan, Civil Action No. 07-cv-1833 (D. Conn. Filed Dec. 12, 2007) (Financial fraud action against former CFO of United Rentals settled with a consent injunction and an order suspending him from appearing before the SEC as an accountant under Rule 102(e)); See also Lit. Rel. 20396 (Dec. 12, 2007); U.S. v. Nolan, 3:07-cr-00293 (D. Conn. Filed Dec. 12, 2007) (Mr. Nolan pleaded guilty and was released on bond but has not been sentenced); SEC v. Milne, Civil Action No. 3:08-cv-505 (D. Conn. Filed Apr. 7, 2008) (financial fraud case against former vice chairman and president of United Rentals stayed because of the criminal case); See also Lit. Rel. 20518 (Apr. 7, 2008); U.S. v. Milne, 3:08-cv-00505 (D. Conn. Filed Apr. 4, 2008) (case is pending).