BEHIND THE NEWS: Settlements bring anticlimactic close to SEC fraud case

August 22, 2005

When the Securities and Exchange Commission in 2003 announced fraud charges against three former executives of once-high-flying Analytical Surveys Inc., it filed court papers laced with explosive allegations.

Anyone who read the 18-page civil lawsuit filed in federal court in Indianapolis might have figured a trial drenched with drama was in the offing.

So much for the climax.

Newly filed court papers show the SEC has quietly reached a $260,000 settlement with Sidney Corder, who was CEO of the computerized-map maker in the late 1990s, when the alleged fraud occurred. The company at the time was based in Indianapolis, but has since moved to San Antonio.

The pact follows a similar one struck late last year with former Controller Brian Yates, 41, who agreed to pay $40,000. SEC filings show he made a $10,000 payment early this year and will settle his debt by making payments over three years.

The remaining defendant, former Chief Operations Officer Randal Sage, 48, has reached a tentative settlement, said his attorney, Stephen Peters. The agreement, which like the others does not include an admission of wrongdoing, will be publicly disclosed pending approval by SEC commissioners, he said.

While SEC officials couldn't be reached for comment, in court records they suggest they extracted everything out of Corder they could, given the 63-year-old's limited financial resources.

Under the settlement, the Zionsville man agreed to a judgment of $760,460, with $554,108 representing the amount the SEC says he gained through misconduct and the remainder representing interest.

However, the SEC said it waived all of that except $260,000 and also waived a fine. It adopted the stance after reviewing sworn financial statements Corder submitted this spring, court records show.

Corder and his attorney, Bruce Black, could not be reached for comment.

In its lawsuit, the SEC charged ASI executives 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.

The suit depicts a make-your-numbersat-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."

Rather than facing up to the reality it had overestimated profits on contracts, company officials began shifting costs from one contract to another and prematurely recognizing revenue on contracts not yet completed, according to the SEC.

The scheme unraveled, the agency says, when Vince Otto came aboard as chief financial officer in late 1999. After two Indiana managers refused to sign letters attesting to the accuracy of cost estimates, Otto alerted the company's outside auditor.

Otto, now CFO of Union Federal Bank, couldn't be reached for comment. In an interview with IBJ two years ago, SEC attorney Kara Washington praised Otto as "someone who was doing the right thing. He worked with the [company's] audit committee to uncover the fraud."

ASI in late 1999 and early 2000 restated earlier financial results, wiping out millions of dollars in profits and sending the company's shares into a prolonged slide, from which they've never recovered.

A slimmed-down ASI reported a loss of $795,000 on revenue of just $1.4 million in its most recent quarter. Its shares last week were fetching $1.50, down from a split-adjusted $500 in 1998.

Clear Channel charges ahead

Texas-based Clear Channel Communications this month took a major step toward spinning off its giant live-entertainment unit to shareholders, filing details of the plan with the SEC.

So where does that leave Sunshine Promotions founder Dave Lucas, who told IBJ in June he's interested in buying all or part of the unit, Clear Channel Entertainment?

His attorney, Craig Pinkus, isn't sure. "Just about everybody, including Dave, is pretty much in a wait-and-see mode," he said. "Let's see how this plays out."

Radio powerhouse Clear Channel Communications in April announced the spinoff as part of a plan to boost shareholder value, and since then executives have reitterated they're committed to the strategy.

Others, however, aren't convinced it's the right course. In May, Bear Stearns analyst Victor Miller said the announcement had the effect of putting the unit "in play," and he argued shareholders would fare better in an outright sale. Analysts estimate it could fetch $1.5 billion or more.

Over the summer, several suitors emerged, including Lucas, former CEO of Clear Channel Entertainment's music division. In June, Pinkus told IBJ Lucas already had preliminary financing.
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