U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20949 / March 12, 2009

Securities and Exchange Commission v. MedQuist Inc., Civil Action No. 09-CV-2297 (S.D.N.Y. filed March 12, 2009)

Securities and Exchange Commission v. John A. Donohoe, Civil Action No. 09-CV-2298 (S.D.N.Y. filed March 12, 2009)

Securities and Exchange Commission v. Brian J. Kearns and Bruce J. Van Fossen, Civil Action No. 09-CV-2296 (S.D.N.Y. filed March 12, 2009)

SEC Charges MedQuist Inc. and Former Senior Executives with Securities Fraud

The Securities and Exchange Commission today filed a settled civil injunctive action against MedQuist Inc., a medical transcription company based in New Jersey, charging it with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that, from 1999 to 2004, MedQuist claimed in SEC filings, press releases and earnings calls that the Company's strong financial performance was due to its disciplined and conservative business practices, while at the same time it was systematically and secretly inflating customer bills to increase revenues and profit margins. Without admitting or denying the allegations, MedQuist agreed to be permanently enjoined from violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws.

The Commission also filed a settled civil action against former MedQuist Director, President, and Chief Operating Officer John A. Donohoe. Without admitting or denying the Commission's allegations, Donohoe agreed to a permanent injunction, a $75,000 civil penalty and a five-year officer and director bar. In its complaint, the Commission alleges that Donohoe, among other things, knew that the Company was increasing its bills to meet revenue and margin targets. The complaint further alleges that Donohoe and others at MedQuist told shareholders and other public investors that the Company's strong financial performance was due to disciplined and conservative business practices, while at the same time it was engaged in overbilling customers. Donohoe agreed to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2 and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.

The Commission's settlements with Donohoe and MedQuist are subject to the approval of the U.S. District Court for the Southern District of New York.

In a separate complaint, the Commission charged former MedQuist Chief Financial Officer Brian J. Kearns and former Controller Bruce J. Van Fossen with participating in the fraudulent scheme. According to the complaint, Kearns and Van Fossen knew that company offices were not calculating bills in accordance with customer contracts, but rather were secretly manipulating the number of transcribed lines charged to customers in order to increase revenues and profit margins. Neither Kearns nor Van Fossen took steps to stop the scheme. Both knew that customers and employees complained of billing fraud, but neither investigated the accuracy of the Company's line counts. The Commission's complaint further alleges that both Kearns and Van Fossen made false statements to auditors designed to conceal the billing complaints and the scheme itself. Both Kearns and Van Fossen prepared, participated in, or signed misleading public filings and statements that attributed the Company's improved financial performance to disciplined and conservative business practices and attributed its revenues to contracted rates and increased sales.

The Commission's complaint charges Kearns and Van Fossen with violations of the antifraud provisions in Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; with violating the provisions regarding internal controls and false statements to auditors in Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and with aiding and abetting the Company's violations of the reporting, books and records, and internal control provisions in Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The complaint also charges Van Fossen, in the alternative, with aiding and abetting others' violations of Section 10(b) of the Exchange Act. The Commission seeks injunctions against future violations, officer and director bars, and civil penalties.

SEC Complaint v. MedQuist Inc.
SEC Complaint v. John A. Donohoe, Jr.
SEC Complaint v. Brian J. Kearns and Bruce J. Van Fossen

http://www.sec.gov/litigation/litreleases/2009/lr20949.htm