Two Executives Who Defrauded Their Shareholders

Two executives were in court in recent days on criminal charges. One in Manhattan and one in San Francisco. Each had defrauded the shareholders of their companies. One pleaded guilty to a multimillion accounting fraud. He is awaiting sentencing. The other had previously pleaded guilty and was sentenced to prison. U.S. v. Hansen, No. 1:12-cr-00188 (S.D.N.Y.); U.S. v. Durland, 3:11-cr-00009 (N.D. Cal.).

Todd Hansen was the president of the U.S. subsidiary of a UK corporation in the outdoor advertising business. Its shares were traded on the London Stock Exchange. Over a five year period beginning in 2004 Mr. Hansen, along with Finance Director James Buckley, had the controller of the company make fictitious accounting entries in the books and records, inflating the income figures. This permitted the company to meet its financial objections. It also resulted in the preparation of false financial statements with inflated monthly income.

Over the five year period the revenue of the company was falsely inflated by about $19.75 million. This permitted Mr. Hansen to earn about $1.1 million in salaries and bonuses over the period.

Mr. Hansen pleaded guilty to one count of conspiracy to commit wire fraud and one count of wire fraud. He is scheduled for sentencing on October 4, 2012. Previously, Mr. Buckley pleaded guilty. He will be sentenced on October 4, 2012.

Jasper Knabb is the former CEO of Pegasus Wireless Corporation of Fremont, California. From May 2005 through January 2008 Mr. Knabb implemented a scheme in which 31 fraudulent promissory notes were claimed to be debt of the company. He then had the company issue shares to satisfy the debt. Overall 490 million shares of stock were issued, about 75% of the outstanding shares of the company. Sales of the shares netted Mr. Knabb and his family and friends over $35 million. At the height of the scheme Pegasus shares traded for $18 per share.

Previously, Mr. Knabb pleaded guilty to one count each of conspiracy to commit securities fraud, securities fraud and falsifying books and records. Last week he was sentenced to serve 253 months or 21 years and one month in prison.

Program: Webcast by Thomas O. Gorman: How Corporate Officials Can Get A Good Night’s Sleep Despite Current SEC Enforcement Trends, presented by Celesq and West Legal Ed, June 14, 2012 from 12 -1:00 p.m. EST. For further information please click here.

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