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BEHIND THE NEWS: Judge in fraud case fines Brightpoint defendant $50,000

July 9, 2007

A federal judge in a high-profile fraud case has slapped a former Brightpoint Inc. manager with a $50,000 fine-a relatively modest sum, but one the manager says he lacks the resources to pay.

Judge Harold Baer of U.S. District Court in Manhattan late last month assessed the fine against Tim Harcharik, the former director of risk management for the wireless phone wholesaler.

Harcharik, 53, was the sole remaining defendant in a securities fraud lawsuit the SEC brought in 2003 against locally based Brightpoint, New York-based insurance giant American International Group and several executives. Regulators charged that Brightpoint in early 1999 used a sham insurance policy to conceal $11.9 million in unexpected losses.

After a four-day trial in Manhattan, a jury on May 25 found against Harcharik on three counts of aiding and abetting securities fraud. The jury found in his favor on another aiding-and-abetting count and a count of securities fraud.

The SEC had sought a stiffer fine. Under a formula the government presented to the court, it would have been at least $120,000 and perhaps millions of dollars.

But Harcharik isn't counting himself lucky.

The 4-year-old case has had a ruinous impact on his career-so much so that he lacked the money to hire an attorney and instead represented himself. He now earns about $30,000 a year doing risk-management-consulting work for a friend.

"The bad news is, it's a $50,000 fine, which I don't have a penny to pay," Harcharik said. "The good news is, it's $50,000 instead of $6 million."

Then there's the fact that Harcharik says he didn't do anything wrong. He's so hellbent on clearing his name that he's plotting plans to appeal the jury's decision to the U.S. Court of Appeals for the Second Circuit.

Asked to comment on the fine, SEC attorney David Stoelting said: "That's what the judge felt was appropriate. We respect the judge's ruling."

Stoelting added: "I think he was taking into account Harcharik's financial situation. He wasn't minimizing the conduct."

Harcharik is the only defendant who didn't immediately settle when the SEC unveiled the allegations in September 2003. At that time, Brightpoint agreed to pay $450,000 and AIG-which, according to the SEC, withheld documents-paid $10 million. In late 2004, AIG paid another $126 million in penalties to settle civil and criminal investigations into the deal with Brightpoint and transactions with Pittsburgh-based PNC Financial Services Group.

Also settling in 2003 were John Delaney, Brightpoint's former chief accounting officer, who paid $100,000; and Phil Bounsall, the company's former chief financial officer, who paid $45,000. Bounsall was accused only of inadequate oversight of the company's books and records, not of participating in fraud.

None of the parties that settled admitted wrongdoing, though Delaney later pleaded guilty to a criminal count of securities fraud and spent eight months in home detention.

Fraud scorecard

The case is one of three high-profile fraud cases the SEC brought against Indianapolis-area executives in recent years. In each, the limited financial resources of the defendants limited the size of penalties.

The SEC in 2004 sued former Conseco Inc. executives Rollin Dick and James Adams, charging they masterminded an accounting fraud that allowed the company to overstate 1999 profits by $367 million.

Each ultimately settled without admitting wrongdoing. Dick, the former chief financial officer, paid $110,000, while Adams, the former chief accounting officer, paid $90,000.

Both men saw their fortunes plunge after Conseco slid into bankruptcy in 2002, leaving the company's shares worthless. Making matters worse, each had purchased millions of dollars in shares with borrowed money.

In 2003, the SEC sued three former executives of Analytical Surveys Inc., charging they used accounting trickery to report profit for the fiscal year ending in September 1999 of $11.4 million-300 percent higher than it should have been.

Within two years, the government had settled with all three. Former CEO Sidney Corder took the biggest hit. He agreed to a $760,000 judgment, but the SEC waived all of that except $260,000 after reviewing his sworn financial statements.

Former Chief Operations Officer Randal Sage agreed to a $511,000 judgment, but the SEC waived all but $185,000 after reviewing financial statements. Former Controller Brian Yates agreed to a fine of $40,000, with payments staggered over three years.

The SEC's lawsuit depicts a make-yournumbers-at-all-costs culture.

"Once analysts predicted ASI's earnings," it says, "Corder pressed his subordinates to achieve these goals. When he became dissatisfied with a subordinate's performance, Corder often shouted, threw documents or threatened jobs."

Analytical Surveys remains in business, but now is headquartered in San Antonio.
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