03.01.2008

SEC files against Apuzzo

The USA Securities and Exchange Commission has filed a complaint against Joseph F. Apuzzo, the chief financial officer of Terex Corporation from 1999 until 2002, for aiding and abetting the securities law violations at United Rentals.

Michael J. Nolan, a former chief financial officer of United has already been charged in connection with the violations. Apuzzo became president of Terex financial services in 2002 quitting in 2005 when the United Rentals issue came to light.

The Commission's complaint, filed in the District Court of Connecticut, alleges that Apuzzo aided and abetted a fraudulent accounting scheme involving two sale-leaseback transactions, carried out between 2000 and 2002 by United, Nolan and others.

The transactions were structured to improve United’s financial results for 2000 and 2001 by allowing it to recognise revenues prematurely and to inflate the profit generated from the sales.

The complaint further alleges that Apuzzo substantially assisted United and Nolan in implementing the fraudulent scheme by signing agreements with United that he knew were designed to hide its financial obligations relating to the sale-leaseback transactions, and directing or approving the issue of inflated invoices that he knew Nolan would use to inflate United’s profits on the transactions.

United substantially overstated its financial results for fiscal years 2000 and 2001 which were difficult years for the company that was highly leveraged at the time. The inflated results would have helped maintain its share price as well as avoid possible breaches of its loan covenants.

The SEC is looking for a permanent injunction prohibiting Apuzzo from being a company officer or director along with other financial and civil penalties.

Nolan has pleaded guilty to the criminal charge of making a false filing which carries a maximum penalty of ten years in prison and a $22 million fine.

In simple terms United, Nolan and Apuzzo are accused of organising a series of interlocking sale-leaseback deals, in which United sold used equipment to a financing company and then leased the equipment back for a short period.

The complaint alleges that United arranged for Terex and Apuzzo to provide guarantees to the finance company against any losses on the deals. This was supported by a back to back guarantee from United to Terex.