U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20156 / June 18, 2007

Accounting and Auditing Enforcement Release No. 2617 / June 18, 2007

SEC v. Tom Shanahan and Clem Hannon, Civil Action No. 07-2879-JNE-SRN (D. Minn.) filed June 15, 2007

SEC Files Financial Fraud Action Against Two Irish Citizens for Their Scheme to Defraud

The Securities and Exchange Commission today announced that on June 15, 2007, it filed a Complaint in the U.S. District Court for the District of Minnesota against two former senior officers of Zomax Limited (Zomax Ireland), the Irish subsidiary of Zomax, Inc. (Zomax), a former U.S. public corporation that was based in Plymouth, Minnesota. The Commission's Complaint alleges that from the end of 2003 through 2004, Tom Shanahan (Shanahan), the former General Manager of Zomax Limited and Clem Hannon (Hannon), the former Financial Controller of Zomax Ireland, engaged in a fraudulent scheme to artificially inflate the financial results of Zomax Ireland by manipulating certain accounting entries and financial records to hide the declining performance of Zomax Ireland. The Complaint seeks injunctive relief against Shanahan and Hannon, as well as the imposition of an officer and director bar.

The Complaint alleges that Shanahan and Hannon directed one of Zomax Ireland's financial accountants to conceal Zomax Ireland's losses by making false journal entries to overstate the sales accrual account, to capitalize spare machine parts that should have been expensed, and to understate accruals for employee holiday pay. The Complaint further alleges that Shanahan and Hannon submitted false Zomax Ireland financial information to Zomax. In addition, they sent false site certifications to Zomax, which Zomax required in order to fulfill its obligations under the Sarbanes-Oxley Act. The Complaint alleges that Shanahan and Hannon's fraudulent scheme caused Zomax to misstate its financial statements for the first three quarters of 2004. The Complaint also alleges that Shanahan and Hannon's fraudulent accounting at Zomax Ireland had a material effect on Zomax's consolidated quarterly financial statements during the first three quarters of 2004. On March 31, 2005, Zomax filed its Form 10-K for 2004, which restated its financial statements for the first three quarters of 2004. The restatement, caused primarily by Shanahan and Hannon's fraudulent accounting, negatively impacted Zomax's previously reported quarterly results for 2004. For the first quarter of 2004, Zomax previously reported a net loss of $981,000; the restatement increased this net loss by $565,000 to $1,546,000. For the second quarter of 2004, Zomax previously reported net income of $1,252,000; the restatement decreased net income for this period by $718,000 to $534,000. For the third quarter of 2004, Zomax previously reported a net loss of $5,497,000; the restatement increased this net loss by $540,000 to $6,037,000.

The Complaint alleges that Shanahan and Hannon committed fraud in connection with the purchase and sale of securities, in violation of Sections 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Complaint also alleges that Shanahan and Hannon violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder by knowingly circumventing Zomax's system of internal accounting controls, knowingly falsifying Zomax Ireland's books, records and accounts, and as a result, aided and abetted Zomax's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/2007/lr20156.htm