SEC v. Leonard J. Guida; Les B. Strauss; David T. Dodge; and PictureTel Corp., No. LR-17448, District of Massachusetts — Press Release

Litigation Release No. 17448 / March 28 , 2002 Accounting and Auditing Enforcement Release No. 1538 SEC Files Actions Against PictureTel Corp. and Three Individuals in Multi-Million Dollar Financial Fraud Securities and Exchange Commission v. Leonard J. Guida (United States District Court for the District of Massachusetts C.A. No. 02-CV-10575-RGS) Securities and Exchange Commission v. Les B. Strauss (United States District Court for the District of Massachusetts C.A. No. 02-CV-10576-REK) The Securities and Exchange Commission ("Commission") announced today that it filed a civil injunctive action against Leonard J. Guida of Sudbury, Massachusetts, the former Vice President of Finance, Worldwide Sales and Service for PictureTel Corp.'s sales department, alleging that Guida orchestrated a $12 million fraud at PictureTel by negotiating, approving and recording revenue from sales transactions for which the purported customers had no obligation to pay. The Complaint alleges that because of Guida's conduct, PictureTel materially overstated its revenues from the third quarter of 1996 through the second quarter of 1997. Guida agreed, without admitting or denying the Commission's allegations, to pay a civil penalty of $50,000, to disgorge his 1996 annual bonus of $13,500 plus prejudgment interest, postjudgment interest of $894.59, and to the entry of a permanent injunction prohibiting him from further violations of the antifraud, public company reporting, record-keeping and internal controls provisions of the federal securities laws. According to the Commission's Complaint, Guida entered into a series of transactions involving undisclosed side agreements which provided that the customers had no firm commitment to pay. The Commission further alleged that after improperly causing PictureTel to recognize revenue from certain of these purported sales, Guida falsely told the company's auditors that the transactions would be paid. The Commission alleges that this statement was not true because the PictureTel customers had no obligation to pay unless the goods were sold through to end users or involved other significant contingencies. According to the Commission's Complaint, PictureTel materially overstated its revenues from the third quarter of 1996 through the second quarter of 1997 by approximately $17.8 million, of which approximately $12 million was attributable to Guida's conduct. The Commission's Complaint alleges that Guida violated the antifraud provisions of the federal securities laws, including Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder. In addition, the Complaint alleges that Guida aided and abetted PictureTel's violations of the public company reporting, record-keeping and internal controls provisions of the federal securities laws, including Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. The Commission also instituted settled cease-and-desist proceedings against PictureTel and Les B. Strauss, the company's former CFO. The Commission's Order found that PictureTel's filings with the Commission were materially false and misleading from the third quarter of 1996 through the second quarter of 1997. In its Order, the Commission also found that Strauss failed to devise or maintain an adequate system of internal accounting controls at PictureTel by, among other things, eliminating the important segregation of duties between the company's sales and accounting functions and vesting unchecked authority in Guida. Without admitting or denying the Commission's findings, PictureTel and Strauss consented to the entry of the Order which prohibits future violations of the public company reporting, record-keeping and internal controls provisions of the federal securities laws. In a companion civil action filed in the United States District Court for the District of Massachusetts which alleged facts similar to the findings in the Commission's Order, Strauss consented to pay a $30,000 civil penalty. In another related matter, the Commission instituted a settled cease-and-desist proceeding against David T. Dodge, the general manager of a leasing company customer. The Commission's Order found that Dodge participated in Guida's scheme by negotiating undisclosed side agreements that relieved his leasing company of any obligation to pay PictureTel unless the goods were sold through to end users. In addition, the Commission's Order found that Dodge assisted Guida's efforts to conceal the scheme by misleading PictureTel's outside auditors about his company's payment obligations for transactions that PictureTel had booked as accounts receivable at the end of 1996. Dodge's statements to the auditors were misleading because his company did not have a firm commitment to pay PictureTel for a substantial portion of the receivable balance. Without admitting or denying the Commission's findings, Dodge consented to the entry of the Order which prohibits him from committing or causing any future violations of the antifraud, public company reporting, record-keeping and internal controls provisions of the federal securities laws, including Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-1, 13a-13, 12b-20, 13b2-1, and 13b2-2 thereunder.

Litigation Release No. 17448 / March 28 , 2002 Accounting and Auditing Enforcement Release No. 1538 SEC Files Actions Against PictureTel Corp. and Three Individuals in Multi-Million Dollar Financial Fraud Securities and Exchange Commission v. Leonard J. Guida (United States District Court for the District of Massachusetts C.A. No. 02-CV-10575-RGS) Securities and Exchange Commission v. Les B. Strauss (United States District Court for the District of Massachusetts C.A. No. 02-CV-10576-REK) The Securities and Exchange Commission ("Commission") announced today that it filed a civil injunctive action against Leonard J. Guida of Sudbury, Massachusetts, the former Vice President of Finance, Worldwide Sales and Service for PictureTel Corp.'s sales department, alleging that Guida orchestrated a $12 million fraud at PictureTel by negotiating, approving and recording revenue from sales transactions for which the purported customers had no obligation to pay. The Complaint alleges that because of Guida's conduct, PictureTel materially overstated its revenues from the third quarter of 1996 through the second quarter of 1997. Guida agreed, without admitting or denying the Commission's allegations, to pay a civil penalty of $50,000, to disgorge his 1996 annual bonus of $13,500 plus prejudgment interest, postjudgment interest of $894.59, and to the entry of a permanent injunction prohibiting him from further violations of the antifraud, public company reporting, record-keeping and internal controls provisions of the federal securities laws. According to the Commission's Complaint, Guida entered into a series of transactions involving undisclosed side agreements which provided that the customers had no firm commitment to pay. The Commission further alleged that after improperly causing PictureTel to recognize revenue from certain of these purported sales, Guida falsely told the company's auditors that the transactions would be paid. The Commission alleges that this statement was not true because the PictureTel customers had no obligation to pay unless the goods were sold through to end users or involved other significant contingencies. According to the Commission's Complaint, PictureTel materially overstated its revenues from the third quarter of 1996 through the second quarter of 1997 by approximately $17.8 million, of which approximately $12 million was attributable to Guida's conduct. The Commission's Complaint alleges that Guida violated the antifraud provisions of the federal securities laws, including Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder. In addition, the Complaint alleges that Guida aided and abetted PictureTel's violations of the public company reporting, record-keeping and internal controls provisions of the federal securities laws, including Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. The Commission also instituted settled cease-and-desist proceedings against PictureTel and Les B. Strauss, the company's former CFO. The Commission's Order found that PictureTel's filings with the Commission were materially false and misleading from the third quarter of 1996 through the second quarter of 1997. In its Order, the Commission also found that Strauss failed to devise or maintain an adequate system of internal accounting controls at PictureTel by, among other things, eliminating the important segregation of duties between the company's sales and accounting functions and vesting unchecked authority in Guida. Without admitting or denying the Commission's findings, PictureTel and Strauss consented to the entry of the Order which prohibits future violations of the public company reporting, record-keeping and internal controls provisions of the federal securities laws. In a companion civil action filed in the United States District Court for the District of Massachusetts which alleged facts similar to the findings in the Commission's Order, Strauss consented to pay a $30,000 civil penalty. In another related matter, the Commission instituted a settled cease-and-desist proceeding against David T. Dodge, the general manager of a leasing company customer. The Commission's Order found that Dodge participated in Guida's scheme by negotiating undisclosed side agreements that relieved his leasing company of any obligation to pay PictureTel unless the goods were sold through to end users. In addition, the Commission's Order found that Dodge assisted Guida's efforts to conceal the scheme by misleading PictureTel's outside auditors about his company's payment obligations for transactions that PictureTel had booked as accounts receivable at the end of 1996. Dodge's statements to the auditors were misleading because his company did not have a firm commitment to pay PictureTel for a substantial portion of the receivable balance. Without admitting or denying the Commission's findings, Dodge consented to the entry of the Order which prohibits him from committing or causing any future violations of the antifraud, public company reporting, record-keeping and internal controls provisions of the federal securities laws, including Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-1, 13a-13, 12b-20, 13b2-1, and 13b2-2 thereunder.