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SECURITIES AND EXCHANGE COMMISSIONLitigation Release No. 17116 / September 5, 2001Accounting and Auditing Enforcement Release No. 1439 / September 5, 2001 SECURITIES AND EXCHANGE COMMISSION v. WILLIAM GRABSKE, ROBERT POCSIK AND RALPH WIDMAIER, United States District Court for the Northern District of California, Civil Action No. C 01-3355 The Securities and Exchange Commission today filed suit in federal district court against the former Chief Executive Officer ("CEO") and two other former officers of Indus International, Inc. ("Indus" or the "Company"), for their roles in a 1999 financial reporting fraud that caused the Company to overstate its quarterly operating income by more than 300%. In a separate action, the Commission instituted administrative cease-and-desist proceedings against Indus and a fourth former employee for their roles in the scheme. Indus, a manufacturer of enterprise asset management software, was headquartered in San Francisco, California at the time of the fraud; the Company is now based in Atlanta, Georgia. Named in district court action were: former President and CEO William Grabske, age 58, of Tiburon, California; former Chief Administrative Officer Robert Pocsik, age 49, of Sag Harbor, New York; and former Vice President of Manufacturing Industry Sales Ralph Widmaier, age 38, of Actworth, Georgia. Named in the administrative filing, in addition to Indus, was Carl Albano, age 52, former General Manager of Contract Operations. According to the Commission's filings, beginning in September 1999, as Indus approached the end of its third fiscal quarter, Grabske and Pocsik directed a scheme to fraudulently boost the Company's financial results to meet analysts' expectations. As part of this scheme, Pocsik instructed Widmaier and Albano to obtain orders from two Indus customers, even though the orders were subject to cancellation. The customer cancellation rights were documented in so-called side letters, which were then hidden from Indus' accounting staff. As a result, Indus improperly recognized revenue on these orders in the quarter ended September 30, 1999. The fraud caused Indus to overstate its revenue for the quarter by $3.7 million (8.1%) and its income from continuing operations by $2.4 million (300.8%). Each of the orders was later cancelled. The Commission's district court complaint charges Grabske, Pocsik and Widmaier with securities fraud (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder); circumvention of Indus' internal accounting controls and falsification of records (Section 13(b)(5) of the Exchange Act and Rule 13b2-1); and aiding and abetting Indus' violations of the periodic reporting and books and records provisions (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder). In addition, the complaint charges Grabske and Pocsik with failing to devise and maintain adequate internal accounting controls and lying to accountants (Section 13(b)(2)(B) of the Exchange Act and Rule 13b2-2 thereunder). The complaint seeks injunctions against each defendant and monetary penalties. In addition, the complaint seeks an order barring Grabske and Pocsik from serving as an officer or director of any public company and disgorgement of ill-gotten gains from sales of Indus stock from Widmaier. Simultaneous with the filing of the Commission's civil complaint, Widmaier consented, without admitting or denying the allegations in the Commission's complaint, to the entry of a permanent injunction, disgorgement of his profits from stock sales of approximately $38,000, and a civil penalty of $15,000. In addition, the Commission instituted, and simultaneously settled, cease-and-desist proceedings against Indus and Albano. The Commission's Order Instituting Proceedings against Indus finds that Indus materially misstated its financial results for the third quarter of fiscal 1999 and directs Indus to cease and desist from violations of the periodic reporting, internal controls and books and records provisions of the federal securities laws. The Commission's Order Instituting Proceedings against Albano finds that Albano caused Indus to issue financial statements for the third quarter that were materially false and misleading and directs Albano to cease and desist from violations of the antifraud and internal control provisions and from causing violations of the periodic reporting and books and records provisions of the federal securities laws. Indus and Albano consented to issuance of their respective Orders without admitting or denying the Orders' findings. In a related matter, the United States Attorney's Office for the Northern District of California today announced that they had charged Grabske with criminal securities fraud, making false statements to the Commission, and other claims, and charged Pocsik with conspiracy to commit criminal securities fraud while at Indus. http://www.sec.gov/litigation/litreleases/lr17116.htm
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