Director Scofflaw Undone By Whistleblower
A corporate director and division CEO of a Fortune 1,000 company who systematically abused his position, obtaining payments from vendors and misappropriating company property, was undone by a whistleblower. The Commission filed a settled action naming the former director as a defendant. SEC v. Fiorentino, Case No. 1:12-cv-2388 (S.D. Fla. Filed Sept. 17, 2012).
Gilbert Fiorentino served as CEO of the product group at Systemax Inc. and as a corporate director from 2004 until his resignation in May 2011. Systemax sells personal computers and consumer electronics through its retail stores under brand names such as Tiger Direct, CompUSA and Circuit City. It also markets these items through its website and direct mail catalogs. Mr. Fiorentio’s group accounted for over 90% of the company revenue in 2010 which was about $3.6 billion.
As CEO of the Technology Products Group, Mr. Fiorentino dealt directly with external service providers. From 2006 through 2010 Mr. Fiorentino used his position to obtain over $400,000 from those conducting business with Systemax. From one manufacturers representative that dealt with the company he took part of the commissions. From another he received monthly payments of $5,000 to $10,000. During this same period Mr. Fiorentino routinely misappropriated property worth several hundred thousand dollars that was used to promote company products. None of this was disclosed to the company.
To the contrary, while serving at the company he was required to execute conflict of interest questionnaires as part of the company’s compliance with Sarbanes-Oxley. In those questionnaires he falsely represented that he did not receive, or make any arrangements for the receipt of, any compensation or other personal benefit from a current or potential supplier, competitor or customer. He also falsely represented that he had complied with the internal controls and procedures of the company and executed management representation letters to the independent auditors which contained similar misrepresentations.
Since Mr. Fiorentino was one of the highest paid executives the company was required to disclose all of his compensation including any transaction exceeding $120,000 involving the issuer and the director or any member of his immediate family. Because of Mr. Fiorentino’s failure to disclose his conduct to the company its filings during the period materially understated his compensation.
Ultimately Mr. Fiorentino’s scheme was halted by a whistleblower complaint which precipitated an internal investigation and later his resignation. In conjunction with his resignation Mr. Fiorentino relinquished stock options valued at $9.1 million and repaid his 2010 annual bonus of $480,000. The Commission’s complaint alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 14(a).
Mr. Fiorentino settled with the Commission, consenting to the entry of a permanent injunction based on each of the Sections cited in the complaint. He also agreed to pay a civil penalty of $65,000 and will be barred from serving as an officer or director of a public company. See also Lit. Rel. No. 22481 (Sept. 17, 2012).