SEC v. Craig D. Perciavalle; Joseph A. Runkel; and William O. Adams, No. 1:23-cv-00109, Southern District of Alabama (Mar. 31, 2023) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,
v.
CRAIG D. PERCIAVALLE, JOSEPH A.
RUNKEL, and WILLIAM O. ADAMS,
Defendants.

Civil Action No. 23-cv-00109

COMPLAINT AND JURY DEMAND
Plaintiff, United States Securities and Exchange Commission (“SEC”), alleges as follows
against Defendants Craig D. Perciavalle, Joseph A. Runkel, and William O. Adams (collectively,
“Defendants”).
I. INTRODUCTION
1. From at least January 2013 through at least July 2016 (the “Relevant Period”),
Defendants engaged in a deceptive scheme to fraudulently overstate revenues and earnings
before interest and tax (“EBIT”). Defendants for Austal USA, LLC (“AUSA”), a wholly owned
United States subsidiary of Austal Limited (“Austal”), an Australian defense contractor.
Perciavalle was AUSA’s former president and Adams was the former director AUSA’s two
shipbuilding programs. Runkel is AUSA’s current director of financial analysis. Defendants
orchestrated the fraud in order to meet or exceed analyst consensus estimates for EBIT, a key
financial metric used by analysts and investors.

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2. Defendants’ misconduct involved using artificially low estimates at completion
(“EAC”) for ships Austal built for the United States Navy (“Navy”). This misconduct allowed
them to reduce the EACs by tens of millions of dollars for certain ships that AUSA built for the
Navy. The artificially low EACs caused AUSA to report inflated revenue and EBIT to Austal. In
turn, Austal publicly reported overstated revenue and EBIT in its filings that were available to
United States investors.
3. Defendants carried out the scheme by improperly reducing estimated costs from
the EACs. In particular, Defendants instructed AUSA personnel responsible for calculating the
EACs to arbitrarily lower them to meet AUSA’s budgets (and, in turn, increase revenue from
period to period). Additionally, Defendants attempted to conceal the fraud by lying to AUSA’s
auditors.
4. As a result of the deceptive scheme, by no later than the financial period ended
December 31, 2013 (reported on February 27, 2014) through at least the financial period ended
June 30, 2015 (reported on August 26, 2015),  Austal prematurely recognized revenue and met or
exceeded analyst consensus estimates for EBIT.
5. During the time period of these false financial filings, Austal’s stock price (as
represented in Australian dollars (“AUD”)) increased in value – going from approximately 0.88
AUD per share during late February 2014 to approximately 2.40 AUD per share by late
November 2015.
6. By engaging in this deceptive conduct, Defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Exchange Act Rules
10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c). In addition, Defendants aided and
abetted Austal’s misconduct by knowingly or severely recklessly providing substantial assistance

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to Austal’s violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5
thereunder, and AUSA’s violations of Section 10(b) of the Exchange Act and Exchange Act
Rules 10b-5(a) and (c) thereunder. Unless restrained and enjoined, Defendants will continue to
violate the federal securities laws.
II. DEFENDANTS
7. Craig Perciavalle is 52 years old and resides in Mobile, Alabama. Perciavalle
served as AUSA’s president from December 13, 2012, until his resignation on February 22,
2021. As president of AUSA, Perciavalle exercised control over the management, general
operations, and policies of AUSA, as well as the conduct which violated the securities laws.  He
is currently employed as a vice president and general manager at the U.S . subsidiary of a
European public shipbuilding company. Perciavalle invoked the Fifth Amendment privilege
against self-incrimination in testimony concerning the facts at issue in this Complaint.
Perciavalle entered into tolling agreements with the SEC, tolling the statute of limitations from
July 1, 2019 through February 28, 2023.
8. Joseph Runkel is 54   years old and resides in Mobile, Alabama. Runkel has
served as AUSA’s director of financial analysis since 2009. Runkel invoked the Fifth
Amendment privilege against self-incrimination in testimony concerning the facts at issue in this
Complaint. Runkel entered into tolling agreements with the SEC, tolling the statute of limitations
from July 1, 2019 through February 28, 2023.
9. William Adams is 63 years old and resides in Mobile, Alabama. Adams served
as director of AUSA’s Littoral Combat Ships (“LCS”) program from 2010 through
approximately July 2015, and then as director of AUSA’s Joint High Speed Vessels (“JHSV”)
program. Adams left AUSA in January 2021. Adams is currently employed at a company that
provides electrical components and support for shipbuilders. Adams invoked the Fifth

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Amendment privilege against self-incrimination in testimony concerning the facts at issue in this
Complaint. Adams entered into tolling agreements with the SEC, tolling the statute of limitations
from January 12, 2021 through February 28, 2023.
III. JURISDICTION AND VENUE
10. The SEC brings this action, and the Court has jurisdiction over this action,
pursuant to Exchange Act Sections 21(d)(1) (action for injunction in district court), 21(d)(3)(A)
(action for penalty and disgorgement in district court), 21(d)(5) (action for equitable relief—
disgorgement—in district court), 21(d)(7) (action for disgorgement in district court), 21(e)
(action for injunction in district court), and 27(a) (district court’s jurisdiction), 15 U.S.C. §§
78u(d)(1), 78u(d)(3)(A), 78u(d)(5), 78u(e), and 78aa(a).
11. The SEC seeks: permanent injunctions under Sections 21(d) and (e) of the
Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e); disgorgement of ill-gotten gains derived from the
conduct alleged in the Complaint, plus prejudgment interest thereon, under Section 21(d)(5) and
21(d)(7) of the Exchange Act, 15 U.S.C. §§ 78u(d)(5) and (7); civil penalties under Section 20(d)
of the Exchange Act, 15 U.S.C. § 78u(d); and officer and director bars under Section 21(d)(2) of
the Exchange Act, 15 U.S.C. § 78u(d)(2). The SEC also seeks any other relief the Court may
deem appropriate.
12. The Court has personal jurisdiction over Defendants, and venue is proper in the
Southern District of Alabama, pursuant to Sections 21(d) and 27 of the Exchange Act, 15 U.S.C.
§§ 78u(d) and 78aa, because many of the acts and transactions constituting violations of the
Exchange Act occurred in this district.  In addition, Defendants reside in this district, AUSA had
its principal place of business in this district at the time of the conduct alleged, and one or more
investors reside in this district.

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13. In connection with the conduct alleged in this Complaint, Defendants, directly or
indirectly, singly or in concert with others, made use of the means or instrumentalities of
interstate commerce, the means and instruments of transportation or communication in interstate
commerce, or the mails, including emails and telephone calls between Defendants and Austal
executives in Australia, AUSA’s transmission of its management accounts via email to Austal,
and Austal’s publication of its reports, presentations, and press releases on its website in
Australia.
IV. FACTUAL BACKGROUND
A. Austal and AUSA’s Business
14. Austal is a global defense prime contractor and a designer and manufacturer of
defense and commercial ships. It is a n Australian corporation with its principal place of business
in Henderson, Australia.  Its common stock (“Ordinary Shares”) trades in Australian dollars on
the Australian Securities Exchange (“ASX”).
15. Austal trades Level 1 sponsored American Depository Shares (“ADRs”) on the
American over-the-counter (“OTC”) market under the symbol AUTLY. An ADR is a negotiable
certificate issued by a U.S. depository bank representing a specified number of shares of a
foreign company stock. Bank of New York Mellon issued the Austal ADRs. An Austal ADR is
equivalent to ten shares of Austal stock trading on the ASX. Austal’s Ordinary Shares trading on
the ASX also trade on the American OTC market under the symbol AUTLF.
16. Austal’s ADRs, its Ordinary Shares trading on the ASX, and its Ordinary Shares
trading on the American OTC are securities within the meaning of Section 3(a)(10) of the
Exchange Act, which defines a “security” to include, among other things, “any...stock.”
17. Austal’s fiscal year runs from July 1 to June 30, and it files half-year and fiscal
year annual reports and press releases with the ASX, and posts those same reports, financial

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statements, and press releases on its website (www.austal.com). Austal’s website is available for
viewing by U.S. investors. A page on the Austal website entitled “U.S. Investors-ADR Program”
provides information on Austal’s ADR program.
18. Analysts who followed Austal’s stock compiled reports about its key financial
metrics, including EBIT. EBIT is a proxy for earnings and analysts and investors use it to assess
the performance of a company’s core operations without the costs of the capital structure and tax
expenses affecting profit. Austal’s targeted EBIT was also important to Austal and AUSA. As
further explained below, Austal directed that AUSA meet certain targets for EBIT, and Austal
often touted the EBIT it achieved in its press releases.
19. Austal prepared its financial statements in accordance with Australian Accounting
Standards (“AAS”), and complied with International Financial Reporting Standards (“IFRS”).
These accounting standards required Austal to use the “latest available, reliable information” to
calculate the EACs. See International Accounting Standard (“IAS”) 8.32. Austal’s reports and
financial statements, which Austal published on its website, represent that Austal’s financials are
prepared in accordance with AAS and comply with IFRS.
20. AUSA is an Alabama limited liability company, located in Mobile, Alabama, and
is wholly owned by Austal. During the Relevant Period, AUSA was governed by its own Board
of Managers, consisting of Austal’s chairman, Austal’s former chief executive officer (“CEO”),
Perciavalle (in his role as AUSA’s president), AUSA’s former chief financial officer (“CFO”)
(who is deceased), and three outside managers. AUSA also prepared its financial statements to
comply with IFRS.

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21. During the Relevant Period, AUSA’s financials were reported as part of Austal’s,
both as part of Austal’s consolidated financials and separately in a discussion of AUSA’s
operations. They also appeared in Austal’s half-year and annual reports.
22. During the Relevant Period, AUSA generated more than 75% of Austal’s
revenue. AUSA generated this revenue largely from AUSA’s shipbuilding contracts with the
Navy.
B. Defendants’ Responsibilities at AUSA
23. During the Relevant Period, as AUSA president, Perciavalle ran and was
ultimately responsible for all aspects of AUSA, including AUSA’s shipbuilding and AUSA’s
financials. Perciavalle was the top AUSA executive, and all other AUSA executives reported to
him, including the former AUSA CFO.
24. During the Relevant Period, as AUSA’s director of financial analysis, Runkel was
part of AUSA’s Finance Department and reported to the former AUSA CFO. Runkel received
EAC data from AUSA’s cost account managers who calculated the EACs, and was then
responsible for finalizing the EACs that were used for AUSA’s financials. Runkel also handled
AUSA’s budgeting, forecasting, and other financial data analysis. Runkel had the added
responsibility of overseeing AUSA’s Earned Value Management System (“EVMS”), the system
AUSA used for measuring project performance and progress. The Navy required AUSA to use
EVMS to report its progress on the shipbuilding contracts to the Navy.
25. During the beginning of the Relevant Period, Adams was Director of the LCS
program, the AUSA shipbuilding program in which AUSA manipulated EACs. As the director
of the LCS program, Adams ran and was responsible for all aspects of construction of the ships
within the program. Adams was director of the LCS program until approximately July 2015,
when he became the director of the other AUSA shipbuilding program, the JHSV program.

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Adams’ involvement in the LCS program continued into at least early 2016, as he transitioned
the incoming LCS director into his former role. As director of both the LCS and JHSV programs,
Adams reported to Perciavalle.
C. Austal’s Navy Contracts and Revenue Recognition
26. During the Relevant Period, AUSA served as the prime contractor on Navy
contracts to build the ships for the LCS and JHSV programs, and built both ships at its Mobile,
Alabama shipyard. LCS ships are 418-foot aluminum combat ships. JHSV s hips are 338-foot
steel transport vessels.
27. In December 2010, the Navy awarded Austal contracts to build LCS ships as the
prime contractor. The ships are numbered using only even numbers. During the Relevant Period,
AUSA built and reported on eleven ships, LCS 6 through 26. AUSA continues to build these
ships for the Navy.
28. During the Relevant Period, Austal and AUSA used EACs as part of a formula to
recognize revenue. The EAC for each ship is the estimate of total costs for the completed ship.
EACs consist of material costs (such as the cost of aluminum and steel), labor costs (such as the
cost to pay employees and contractors) and overhead expenses already incurred, plus estimated
future material, labor, and overhead costs to complete the ship. Each ship had its own EAC
during construction and the EACs for the ships in progress were combined to generate an overall
EAC.
29. The total revenue Austal received for each ship was based on the Navy contract,
and Austal recognized that revenue period by period based on progress towards completion, with
Austal recognizing the full amount on completion. Progress was determined by measuring
expenses actually incurred to date compared to the EAC for the ship. As the material, labor, and

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overhead costs were actually incurred, a lower EAC number caused Austal to show greater
progress towards completion and, as a result, recognize more revenue during that period.
30. AUSA calculated monthly financial numbers, including revenue and profit, which
it reported to Austal monthly in spreadsheets called “Management Accounts.” Austal
incorporated the financial data in the Management Accounts into Austal’s half-year and annual
reports.
31. In addition to its public financial reporting, AUSA’s Navy contracts required
AUSA to submit certain monthly reporting to the Navy on the status of each ship’s progress
through the EVMS. These monthly reports, called “Contract Performance Reports” (“CPRs”),
were prepared by AUSA personnel supervised by Runkel and included a latest revised estimate
EAC (hereinafter, the “Navy EACs”).
D. Austal’s Budgeted Revenue and EBIT
32. Austal had an annual budgeting process and it budgeted AUSA to generate certain
amounts of revenue and EBIT for each reporting period. By at least the beginning of, and
continuing throughout the Relevant Period, Austal pressured AUSA to meet its budgeted revenue
and EBIT. For example, on or about February 27, 2013, Austal’s former CEO emailed
Perciavalle in response to an email informing Austal that AUSA’s EBIT and revenue were less
than the budget for the month. Austal’s former CEO scolded Perciavalle about AUSA’s “under
budget performance,” urged him to “hit the quarter and year end budget numbers,” and warned
him that “investors . . . expect us to keep our promise . . . and will not tolerate under delivery.”
Perciavalle responded: “I fully understand the importance in meeting our commitments and will
continue to drive toward that end.”
33. Similarly, on or about January 9, 2015, Perciavalle texted the former AUSA CFO
a copy of certain AUSA EBIT targets that Austal’s former CEO had given Perciavalle for half-

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year 2015 and fiscal year 2015. Perciavalle sent these target numbers to former AUSA CFO with
direction to meet these targets. Perciavalle and the former AUSA CFO continued to text each
other and discussed how to manipulate the EACs to meet the target EBIT numbers.
34. The manipulation was successful as AUSA’s final EBIT for half-year and fiscal
year 2015 exceeded AUSA’s EBIT listed in Perciavalle’s text.
E. Defendants Knew AUSA Could Not Achieve Austal’s Financial Targets.
35. During the Relevant Period, Defendants knew, or were severely reckless in not
knowing, that AUSA could not achieve Austal’s financial targets. AUSA’s initial LCS bid did
not sufficiently account for rising costs, change orders, or other issues that contributed to cost
overruns. AUSA’s budgeted revenue and EBIT for period to period, however, was based on the
LCS bid costs, and so the rising costs of building the LCS meant that AUSA was not meeting its
budgeted revenue and EBIT.
36. During the build of LCS 6, and at the latest by December 2013, it was clear to
Perciavalle, Runkel, and Adams that it would be impossible to meet Austal’s demands to
generate enough revenue in a reporting period to achieve the targeted EBIT. This was because
AUSA’s actual costs to build LCS 6 far exceeded AUSA’s budgeted costs in its Navy bid.
37. Perciavalle received detailed information, including in weekly LCS meetings,
from Runkel, Adams, and others, which showed that the estimated material and labor costs
exceeded the costs on which AUSA had based its bid for the LCS contract.
38. Additionally, Defendants saw detailed information showing that the cost to build
each new LCS ship was rising. For example, AUSA had to purchase over twice the amount of
aluminum sheets for each LCS ship than initially budgeted because it underestimated the amount
aluminum sheets each LCS ship would require.

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39. AUSA’s labor costs were also higher than the labor bid costs and were rising with
each LCS ship. For example, it was difficult to find welders with experience welding aluminum,
so instead of hiring welders who could immediately start doing the job necessary to complete the
ships, AUSA spent labor hours teaching those workers aluminum welding.  Also, AUSA
struggled to hire and retain the skilled labor needed to build the ships.
F. Defendants’ Deceptive Conduct Caused Austal to Prematurely Recognize
Revenue.

1. Manipulation of Material EACs
40. AUSA and Defendants manipulated the LCS EACs related to material costs by
failing to include all the estimated cost growth in the EACs.
41.  AUSA and Defendants calculated the LCS material EACs based on: (a) actual
costs of material already purchased; and (b) estimated costs of material to be purchased to
complete the LCS. One of the AUSA LCS material manager’s (“Material Manager”) duties was
to calculate the EACs.
a. The Material Manager Documented Defendants’ Demands to
Falsify the EACs.
42. At various times during the Relevant Period, Runkel and Adams instructed the
Material Manager to falsely reduce the LCS material EACs below the true costs. The Material
Manager wanted AUSA to recognize the actual cost growth and to use the EACs she calculated,
which she wanted to base on the “latest available, reliable information.” Instead, Adams and
Runkel provided AUSA’s Material Manager with manufactured EACs and directed her to use
the manipulated numbers to reach Austal’s financial targets. Runkel and Adams provided the
manipulated EAC numbers to the Material Manager using disposable sticky notes to conceal the
fraud and make sure it was untraceable in AUSA’s electronic or physical records.

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43. The Material Manager resisted these directives to falsely reduce the LCS material
EACs below the true costs by, among other things, discussing her opposition with Runkel and
Adams, and questioning the use of phony EACs.
44. On or about January 10, 2013, the Material Manager wrote in an email to herself
that Runkel and the former AUSA CFO instructed her to lower the EACs that she had calculated.
The Material Manager’s memo stated: “My numbers were good but Runkle [sp] said lower [the
Estimate to Completion] . . . .” The Estimate to Completion (“ETC”) is the estimated amount of
future expenses needed to complete the ship. This amount is added to costs already incurred to
calculate the EAC.
b. Defendants Used Phony “Challenges” to Hide Cost Growth.
45. During the Relevant Period, both Perciavalle and the former AUSA CFO told
Runkel and Adams that AUSA was not going to include all the estimated material cost growth in
the EACs.
46. In order to conceal the true estimated cost growth of the materials, Perciavalle
instructed various AUSA personnel, including Runkel and Adams, to improperly reduce the
EACs, terming these reductions “management challenges” or “program challenges.”  Defendants
designed these “challenges” to appear as legitimate ways to reduce the LCS material costs.
47. In reality, however, these so-called “challenges” were equal to the amount of LCS
estimated cost growth that Defendants did not want to include in that financial period’s EAC.
The amount of “challenges” increased over time so that almost none of the additional estimated
cost growth was included in the EACs.
48. For example, on or about April 18, 2013, the Material Manager emailed herself to
document that Adams instructed her to manipulate the LCS EACs through a “challenge” process.
She wrote “[t]oday we were asked by [Adams] to modify the LCS EAC’s... I explained to

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[Adams] that he needed to give me reasons for the reductions and I did not want to modify the
values to meet a number.” She further described that Adams “said he will take challenges such as
material returns . . . to make up the deltas” and explained that she “needed the board numbers to
know what numbers [she] had to hit.”
49. Under the applicable international accounting standard, Defendants must prepare,
but failed to do so, EACs based on the “latest available, reliable information.” See IAS 8.32.
50. Nonetheless, Perciavalle’s “management challenges” – that Runkel and Adams
implemented – were unsupported and not tied to specific, realistic, or achievable costs of the
materials required to build each LCS. Rather, the “challenges” were the estimated cost growth
that Perciavalle, Adams, and Runkel did not want to include in the EACs sent to Austal.
51. For example, on or about July 5, 2013, the Material Manager sent an email to a
colleague that “[Perciavalle] wants all growth moved to challenges as an offset.” This directive
was not tied to any true, actual, or realistic reduction.
52. Although the Material Manager and other LCS program personnel told
Perciavalle and Adams the challenges were unrealistic, Perciavalle directed the Material
Manager to continue to apply the challenges to the total material EACs that were reported to
Austal.
53. In the spring of 2016, when the Materials Manager would complain, Adams told
the Material Manager that if she wanted to keep her job, she should not to discuss the
management challenges with the Austal CFO.
54. The Material Manager reduced the EAC calculations as instructed, but also
maintained a spreadsheet to memorialize the material EACs she calculated as compared to the
artificially reduced material EACs that AUSA reported to Austal.

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c. Defendants Attended Weekly Meetings to Discuss the Phony
“Challenges”
55. On every Friday throughout the Relevant Period, AUSA had weekly LCS
Executive Review Meetings, multi-hour meetings attended by AUSA personnel involved in all
aspects of the LCS shipbuilding process, who presented on the status of each LCS under
construction. Perciavalle led these weekly LCS Executive Review Meetings; Adams always
attended until approximately June or July 2015 when he transferred to the JHSV program; and
Runkel attended at least some of these meetings. These meetings included weekly PowerPoint
presentations containing slides with the monthly material EACs, and documented both the
Material Manager’s LCS EACs as well as the challenges applied to lower them.
56. For example, the August 2, 2013 Executive Review Meeting featured a chart
showing the material EAC for LCS 6 for June 2013. After costs increased by at least $2 million,
the chart listed a “Program Challenge,” showing a $2 million reduction from the material EACs
for LCS 6. This “Program Challenge,” however, was not tied to any specific reduction in cost
and did not explain how the estimated material costs to finish the ship might be lowered by $2
million.
57. A year later, a similar slide presented at August 1, 2014 Executive Review
Meeting included the LCS 6 material EACs for June 2014. The slide referred to a “Program
Offset,” rather than a Program Challenge, but contained the same type of information and
functioned like the Program Challenge. Perciavalle directed the Material Manager, through an
instruction to Adams, to delete the explicit reference to a  “Program Challenge” in the slides to

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conceal from others not involved in the EAC process that Defendants were applying an offset to
arbitrarily lower the EACs.
58. The weekly LCS Executive Review presentations throughout the Relevant Period
demonstrate Defendants’ knowledge that: (1) the estimated material costs to complete the LCS
were increasing over time; and (2) the phony “challenges” did not lead to cost reductions
(because, they were unsupported amounts Defendants used to justify lowering the EACs).
2. Manipulation of Labor EACs
59. AUSA’s estimated labor costs to build a LCS ship were higher than the estimated
labor costs that it used in the Navy bid. Instead of including these costs in the LCS labor EAC,
AUSA and Defendants manipulated the labor hours (which hours were then converted to a labor
cost EAC) to more closely align them with the amount used for AUSA’s Navy bid.
a. Defendants Were Aware of the Rising Labor Costs.
60. From approximately mid-2015 forward, Perciavalle was aware of the rising labor
cost numbers because the new LCS program director met weekly with him to discuss the rising
costs.
61. Additionally, the Executive Review Meeting presentations referenced above (see
¶ 55)  – that Defendants usually attended – contained PowerPoint slides with the weekly labor
hours data and labor EACs, showing: (1) that the labor EACs were much higher than the bid
labor EACs and continuing to grow; and (2) a trend of increased labor hours as ships neared
completion.
62. January 2015 text messages between Perciavalle and the former AUSA CFO (see
¶¶ 33 and 78) also show that Defendants intentionally manipulated the labor EACs because they
were too high. In those messages, Perciavalle asks the former AUSA CFO whether it easier to
manipulate material or labor.

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63. These same text messages demonstrate that Perciavalle consulted with Adams and
Runkel on how to manipulate the EACs.
b. Defendants Knew that Labor Costs Were Coming In Higher
than the Navy Bid.
64. During the Relevant Period, AUSA used different methods to estimate the labor
hours (and so labor EACs) to complete the LCS ships. These methods usually showed the labor
hours necessary to build the ships in the LCS program were higher than the Navy bid.
Nevertheless, Defendants continued to use either only the labor hours already incurred on the
earlier ships (which they had to include in the LCS labor EACs) or, for the ships early in
construction, the Navy bid labor EACs.
65. Perciavalle was aware that the EACs differed depending on the calculation
method. Indeed, Perciavalle instructed AUSA personnel to submit the higher labor EAC numbers
to the Navy to support AUSA’s shipbuilding schedule. Although Defendants received and
analyzed this data, AUSA initially continued to base the LCS labor EACs on the hours that were
included in the original LCS Navy bid.
c. Defendants Manipulated Labor EACs.
66. Later in the Relevant Period, in an attempt to estimate labor costs for the ships
early in their construction cycle, Runkel applied a “learning curve” to the labor hours required to
build subsequent LCS ships under the Navy contract. This “learning curve” method assumed that
labor hours would significantly decrease on each subsequent ship. More specifically, Runkel’s
90% “learning curve” assumed that the labor hours (and so EACs) of each subsequent LCS ship
would be 90% of the labor costs for the LCS ship built before it (“90% Learning Curve”). In
reality, the 90% Learning Curve was just another way that the Defendants tried to justify a
reduction in the overall labor EACs to meet Austal’s targets.

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67. Perciavalle and Runkel began using Runkel’s estimated labor hours based on the
90% Learning Curve for the labor EACs. However, applying the 90% Learning Curve to ships
early in construction resulted in labor hours that were completely inconsistent with the labor
hours actually used to build the first few LCS ships.
68. Further, the new LCS program director,  who took over for Adams in
approximately July 2015, told Perciavalle and Runkel that even using a 90% Learning Curve for
labor hours would yield inaccurately low EACs.
69. For example, on or about October 21, 2015, the new LCS program director
emailed the LCS vice president that he had reported his estimates for labor hour EACs for LCS 8
through 24 to Runkel, and they were hundreds of thousands of labor hours above the 90%
Learning Curve numbers, which AUSA used to calculate revenue and EBIT. In the email, the
new LCS program director explained that using his accurate numbers was “ugly as it relates to
EBIT.” The LCS vice president responded: “[Perciavalle] just grabbed me after speaking to
[Runkel]...[Perciavalle] not happy with the numbers and advised [Runkel to] stick with 90% as
worst case.”
70. Several weeks later, on or about November 9, 2015, Runkel emailed Perciavalle
and the former AUSA CFO a chart of the LCS labor hours, showing various calculations of the
LCS labor hours for each LCS ship, including the 90% Learning Curve. This chart showed that
for the nearly completed LCS 6 and 8, the incurred labor hours were far above the original Navy
bid labor EACs. In fact, the cost of the incurred labor hours were already equal to the highest
possible cost estimated by AUSA. Defendants intentionally ignored this information and
continued to use labor EACs for subsequent ships that were far below the labor costs needed to
build LCS 6 and 8, and far below the highest possible cost estimates.

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G. Defendants Hid the EAC Manipulation From AUSA’s Auditor.
71. During the Relevant Period, Austal was audited by a global accounting firm in
Perth, Australia. As part of that audit, the accounting firm’s U.S. affiliate conducted yearly audits
and half-year reviews of AUSA, and reported its findings and conclusions for each audit and
review to the auditors in Perth. Further, the U.S. auditors also issued an opinion on AUSA’s
separate financial statements for fiscal years 2014 through 2016.
72. Throughout the Relevant Period, Defendants did not disclose their EAC
manipulation to AUSA’s auditor and, in fact, took steps to hide it.
73. First, in at least June 2014, as part of its 2014 audit of AUSA, the AUSA auditor
asked AUSA to explain its EAC process. In response to this request, in or around July 11, 2014,
Defendants and others met to prepare an explanation. Rather than disclose how they manipulated
the LCS EACs to meet EBIT targets, Defendants deliberately chose not to discuss the EAC
process using an LCS ship. Instead, the Defendants explained the EAC process using a JHSV
ship because AUSA was not applying the “management challenges” to the JHSV EACs. At the
July 2014 meeting with the auditors, Adams and Runkel, only presented a  JHSV PowerPoint to
the auditors and concealed AUSA’s use of a “management challenge” in the calculation of the
LCS EACs.
74. Second, for at least every annual audit conducted by AUSA’s auditors during the
Relevant Period, Runkel and Adams completed written questionnaires about the LCS program
that did not disclose AUSA’s use of management challenges and reported false EACs. Runkel
and Adams also met in person with AUSA’s auditors for every half-year review and annual audit
to discuss the LCS EACs, and similarly failed to disclose management challenges or that Austal
was using false EACs.

19

75. Third, AUSA started in approximately December 2012 using EAC “sign-off”
sheets reflecting the EACs that AUSA used to calculate its revenue and gross profit in its
financial statements. AUSA used these sign-off sheets to show its auditor that its EACs were
legitimate. There were sign-off sheets for both material EACs and labor hours. Each sign-off
sheet listed a specific EAC and included a signature line for each LCS ship under construction.
Some of the project managers (who supervised the building of one LCS ship) initially added
disclaimer notes highlighting cost growth that was omitted from the EACs. AUSA senior
management, including Adams, stopped this practice by ordering the project managers not to
include the notes explaining that potential cost growth was not included in the EACs. The clean
“sign-off” sheets (without disclaimers or notes) effectively concealed from the auditors the
fraudulently low EACs.
76. During the Relevant Period, Adams knew that some of the project managers were
uncomfortable with signing the sign-off sheets because the EAC numbers were inaccurate.
Rather than forcing these project managers to sign them anyway, Adams sometimes signed the
LCS sign-off sheet.
77. In approximately January 2016, Adams signed the LCS labor hours EAC sign-off
sheet for the December 31, 2015 EACs. At the time Adams signed this sign-off sheet, he was no
longer the LCS director. This sign-off sheet documented the phony labor EACs that AUSA used
to calculate its half-year 2016 financials. Adams concealed from the AUSA auditors that project
managers did not want to sign the sign-off sheets.
78. Perciavalle discussed his intent to deceive the auditors with the former AUSA
CFO. In the January 2015 text messages between Perciavalle and the former AUSA CFO (see ¶¶
33 and 62), the former AUSA CFO stated “[AUSA’s auditor] is going to take some

20

convincing...started with the easier stuff to defend and they’ll want to understand the math” of
the EAC changes AUSA was making, and Perciavalle responded: “I will definitely defer to you
on how best to sell to them.” Perciavalle further suggested trying to keep various EAC changes
“mutually exclusive otherwise it will raise the flag higher.” The former AUSA CFO also
referenced Adams’ involvement with AUSA’s auditor, stating that they needed to discuss with
Adams first because AUSA’s auditor “may well want a call with [Adams] to validate.”
79. Finally, Perciavalle signed management representation letters sent to AUSA’s
auditors in which he made numerous false representations. In the management representation
letters for the audit of AUSA’s Management Accounts for fiscal year 2014 (dated August 15,
2014) and fiscal year 2015 (dated on or about August 24, 2015), Perciavalle falsely represented
that: (1) AUSA had fulfilled its responsibilities for preparation of and fair presentation of the
financial statements in conformity with IAS and Austal accounting policies; (2) there were no
material transactions that were not properly recorded in AUSA’s accounting records; (3) the
significant assumptions used by AUSA in making accounting estimates were reasonable and
supportable; (4) AUSA properly recognized vessel construction revenue using the percentage of
completion method; (5) all contract-related estimates represented management’s best estimate;
and (6) he had no knowledge of any fraud or suspected fraud involving management or other
employees with a significant role in AUSA’s financial reporting.
80. In the management representation letters for the interim review of AUSA’s
Management Accounts for half-year 2014 (dated February 18, 2014) and half-year 2015 (dated
February 25, 2015), Perciavalle falsely represented that: (1) AUSA had fulfilled its
responsibilities for preparation of and fair presentation of the financial statements in conformity
with IAS and Austal accounting policies; (2) he had no knowledge of any fraud or suspected

21

fraud involving management or other employees with a significant role in AUSA’s internal
controls or in which the fraud could have a material effect on AUSA’s Management Accounts;
and (3) the significant assumptions used by AUSA in making accounting estimates were
reasonable and supportable.
81. In the management representation letter for the interim review of AUSA’s
Management Accounts for half-year 2016 (dated February 19, 2016), Perciavalle falsely
represented that: (1) AUSA had fulfilled its responsibilities for preparation of and fair
presentation of the financial statements in conformity with IFRS and Austal accounting policies;
(2) he had no knowledge of any fraud or suspected fraud involving management or other
employees with a significant role in AUSA’s internal controls or in which the fraud could have a
material effect on AUSA’s Management Accounts; (3) the significant assumptions used by
AUSA in making accounting estimates were reasonable and supportable; (4) there were no
material transactions that were not properly recorded in AUSA’s accounting records; (5) AUSA
properly recognized vessel construction revenue using the percentage of completion method; and
(6) all contract-related estimates represented management’s best estimate.
82. In the management representation letter for the audit of AUSA’s financial
statements for fiscal year 2015 (dated September 8, 2015), Perciavalle falsely represented that:
(1) AUSA had fulfilled its responsibilities for preparation of and fair presentation of the financial
statements in conformity with IAS; (2) there were no material transactions that were not properly
recorded in AUSA’s accounting records; (3) the significant assumptions used by AUSA in
making accounting estimates were reasonable and supportable; (4) AUSA properly recognized
vessel construction revenue using the percentage of completion method; (5) all contract-related
estimates represented management’s best estimate; and (6) he had no knowledge of any fraud or

22

suspected fraud involving management or other employees with a significant role in AUSA’s
internal controls or in which the fraud could have a material effect on AUSA’s financial
statements.
H. Due to Defendants’ Deceptive Conduct, Austal Made False Filings, Press
Releases, and Investor Presentations.
83. Defendants and AUSA reported their financials to Austal. Austal reported its
financials on Austal’s website, in press releases, and in public filings made in Australia on the
ASX.
84. Austal’s filings, press releases, and investor presentations that contained or
discussed Austal’s financial statements and results and the amount Austal’s revenue and EBIT,
and included Austal’s fraudulent revenue and EBIT, at least the following:
Half-year 2014, ending December 31, 2013
a. Austal Half-Year Report, 31 December 2013, issued on February 27, 2014,
attaching financial statements and containing discussion of financial results;
b. Austal H1 FY14 results presentation, issued on February 27, 2014, containing
discussion of financial results; and
c. Austal press release “Austal Reports Strong Growth,” issued on February 27,
2014, containing discussion of financial results.
The financial statements, report, results presentation, and press release falsely reported, among
other things, that for half-year 2014, Austal’s revenue was approximately AUD 507.6 million
(approximately $450.3 million) and EBIT was AUD 18.7 million (approximately $16.5 million).
For this period, Austal reported that AUSA had approximately AUD 419.8 million
(approximately $372.5 million) in revenue and AUSA EBIT was AUD 26.9 million
(approximately $23.9 million). This information came from the Management Accounts that

23

Perciavalle directed AUSA to provide to Austal. As explained in the chart below, see infra ¶ 89,
Austal’s results, were overstated by approximately $14.52 million for revenue and EBIT.
Fiscal year 2014, ending June 30, 2014
a. Austal 2014 Annual Report, issued on August 27, 2014, attaching financial
statements and containing discussion of financial results;
b. Austal FY2014 results presentation, issued on August 27, 2014, containing
discussion of financial results; and
c. Austal press release “Austal Delivers Record Revenue and Reduces Net Debt by
50%,” issued on August 27, 2014, containing discussion of financial results.
The financial statements, report, results presentation, and press release falsely reported, among
other things, that for fiscal year 2014, Austal’s revenue was approximately AUD 1.12 billion
(approximately $1.05 billion) and EBIT was AUD 55.6 million (approximately $52.3 million).
For this period, AUSA reported approximately AUD 933.6 million (approximately $879.4
million) in revenue and EBIT was AUD 61.7 million (approximately $58.1 million). As
explained in the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately
$33.53 million for revenue and EBIT.
Half-year 2015, ending December 31, 2014
a. Austal 31 December 2014 Half-Year Report, issued on February 25, 2015,
attaching financial statements and containing discussion of financial results;
b. Austal FY2015 H1 results presentation, issued on February 25, 2015, containing
discussion of financial results; and

24

c. Austal press release “Austal Delivers Revenue and Earnings Growth; Returns to
Dividends,” issued on February 26, 2015, containing discussion of financial
results.
The financial statements, report, results presentation, and press release falsely reported, among
other things, that for half-year 2015, Austal’s revenue was approximately AUD 680.2 million
(approximately $554.8 million) and EBIT was AUD 45.0 million (approximately $36.7 million).
For this period, AUSA reported approximately AUD 498.3 million in revenue (approximately
$406.4 million) and EBIT was AUD 27.4 million (approximately $22.4 million). As explained in
the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $17.01 million
for revenue and EBIT.
Fiscal year 2015, ending June 30, 2015
a. Austal 2015 Annual Report, issued on August 26, 2015, attaching financial
statements and containing discussion of financial results;
b. Austal FY2015 results presentation, issued on August 26, 2015, containing
discussion of financial results; and
c. Austal press release “Austal Delivers Record Profit, Increases Dividend,” issued
on August 26, 2015, containing discussion of financial results.
The financial statements, report, results presentation, and press release falsely reported, among
other things, that for fiscal year 2015, Austal’s revenue was approximately AUD 1.41 billion
approximately $1.08 billion) and EBIT was AUD 84.8 million (approximately $64.9 million).
For this period, AUSA reported approximately AUD 1.12 billion in revenue (approximately
$857.4 million) and EBIT was AUD 58.4 million (approximately $44.7 million). As explained in

25

the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $14.15 million
for revenue and EBIT.
Half-year 2016, ending December 31, 2015
a. Austal 31 December 2015 Half-Year Report, issued on February 23, 2016,
attaching financial statements and containing discussion of financial results;
b. Austal FY2016 H1 results presentation, issued on February 23, 2016, containing
discussion of financial results; and
c. Austal press release “Austal Delivers Strong Cashflow, Doubles Interim
Dividend,” issued on February 23, 2016, containing discussion of financial
results.
The financial statements, report, results presentation, and press release falsely reported, among
other things, that for half-year 2016, Austal’s revenue was approximately AUD 747.4 million
(approximately $544.7 million) and EBIT was AUD 29 million (approximately $21.1 million).
For this period, AUSA reported approximately AUD 638.4 million in revenue (approximately
$465.2 million) and EBIT was AUD 26.9 million (approximately $19.6 million). As explained in
the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $26.33 million
for revenue and EBIT.
85. Defendants understood that the manipulated EACs directly impacted Austal’s
financial statements during the Relevant Period. Perciavalle and Runkel were directly involved
with AUSA’s Management Accounts sent to Austal. Thus, they knew, or were severely reckless
in not knowing, that AUSA reported false revenue and EBIT (based on artificially low EACs) to
Austal, and that in turn Austal used AUSA’s false financial data to support Austal’s financial
statements. Adams knew, or was severally reckless in not knowing, that the false EACs would

26

ultimately impact Austal’s financial statements. Adams admitted to the Material Manager that
Austal’s stockholders did not know that AUSA, and so Austal, were using artificially low EACs
to calculate revenue.
I. The Manipulated EACs Were Much Lower than the EACs AUSA Submitted
to the Navy.
86. Under Runkel’s supervision, AUSA sent the Navy monthly CPRs, which included
the Navy EACs. These Navy EACs reflected higher LCS EACs than the EACs that AUSA used
to calculate its revenue and EBIT. Among other things, these CPRs supported AUSA’s costs,
progress, and timing of building the LCS ships. Thus, AUSA had an incentive to report more
accurate EACs to the Navy in order to explain any delays in completion and to justify any
attempt to obtain payments from the Navy in excess of the contract amount.
87. As set forth in the chart below (all numbers below are approximate), comparing
the Navy EACs to the LCS EACs that AUSA used to calculate revenue and profit and reported
to Austal demonstrates that AUSA understated the LCS EACs by tens of millions of dollars by at
least its half-year 2014:

12/31/13
HY14
6/30/14
FY14
12/31/14
HY15
6/30/15
FY15
12/31/15
HY16
AUSA’s
Reported LCS
EACs
$1.02
billion
$1.50 billion $2 billion $2.53 billion $2.21 billion
Navy EACs  $1.05
billion
$1.56 billion $2.10 billion $2.62 billion $2.36 billion
Difference  ($37.75
million)
($58.18
million)
($103.87
million)
($96.40
million)
($141.93 million)

27

J. AUSA’s False LCS EACs Allowed Austal to Meet or Beat Analyst Consensus
Estimates for EBIT.

88. Using the manipulated LCS EACs resulted in Austal overstating revenue and
profit for at least the half and annual year periods set out in the chart below, thus allowing it to
generally meet or beat analyst consensus for EBIT, Austal’s most important financial metric.
89. If AUSA had used the Navy EACs, Austal would have missed, by wide margins,
analyst consensus estimates for EBIT for its half-year 2014, fiscal year 2014, half-year 2015, and
fiscal year 2015, as well as reported an EBIT loss for half-year 2016, as reflected in the below
chart:

Austal’s Reported
EBIT
Analyst Consensus
EBIT
Austal’s EBIT if
used the Navy EAC
Half-year 2014 $22.81 million $20.67 million $8.29 million
Fiscal year 2014 $61.51 million $56.94 million $27.98 million
Half-year 2015 $27.49 million $27.73 million $10.48 million
Fiscal year 2015 $56.04 million $54.93 million  $41.89 million
Half-year 2016 $21.13 million  $23.32 million $(5.20) million
90. All numbers in the above chart are approximate and have been converted into US
Dollars from AUD. Further, the analyst consensus EBIT and Austal’s reported EBIT numbers
listed in the above chart are from Refinitiv Institutional Brokers’ Estimate System (I/B/E/S), and
the Refinitiv I/B/E/S analysts made certain adjustments to Austal’s reported EBIT numbers in
order to make these figures comparable to the analyst consensus figures.
91. While Austal’s reported EBIT was approximately $240,000 less than the EBIT
analyst consensus for the half-year ended December 31, 2014 (referred to as half-year 2015 in
the chart above), this amount is marginal and analysts and the investing public understood that

28

Austal had met expectations for EBIT for that period. Austal announced these half-year 2015
results on February 25, 2015, and the closing price of Austal’s Ordinary Shares stayed consistent
around AUD 1.585 to 1.59 per share.
92. As discussed below, because AUSA was ultimately forced to include some of the
cost growth for the half-year ended December 31, 2015 (referred to as half-year 2016 in the chart
above), Austal’s reported EBIT was lower than the analyst consensus EBIT for that period.
Using the Navy EACs for that period, however, would have generated a far larger miss and an
EBIT loss.
93. Overall, by meeting or exceeding analysts’ EBIT consensus estimates, Austal’s
Ordinary Shares and ADRs increased dramatically in price. From the financial period ended
December 31, 2013 (reported to the investing public on February 27, 2014) through the financial
period ended June 30, 2015 (reported to the investing public on August 26, 2015), Austal’s
Ordinary Shares increased in value – going from approximately AUD 0.88 per share during late
February 2014 to approximately AUD 2.40 per s hare by late November 2015.
94. In addition, Austal’s Ordinary Shares price and volume sometimes increased
substantially after it prematurely recognized revenue and met or beat analyst consensus estimates
for EBIT. For example, on August 26, 2015, on the ASX, Austal reported its fiscal year 2015
results for the period ending June 30, 2015, and the next day its Ordinary Shares increased from
a closing price of AUD 1.87 to 1.97 a share and its daily volume went from nearly 800,000 to
more than 2.5 million.
K. The Fraud Starts to Come to an End.
95. As construction of the LCS ships progressed, the false EACs began to catch up to
AUSA. Indeed, by April 2015, the “challenge” that Perciavalle wanted to apply to LCS 6 was
higher than the cost of materials estimated from that point forward to complete the ship. If

29

AUSA had applied the entire challenge, the EAC on LCS 6 would be lower than what AUSA
had already spent on LCS 6. As such, AUSA had to recognize the EAC increase on LCS 6.
96. By the end of 2015, as it was preparing its half-year 2016 financials, AUSA’s
Navy EACs had grown far beyond the manipulated LCS EACs (as reflected in the chart above).
Because certain ships were now completed or nearly completed and AUSA had incurred costs to
complete the ships, AUSA had to include these building costs in the EACs. In turn, this
negatively impacted AUSA’s, and thus Austal’s, profit. In fact, on or about September 21, 2015,
the former AUSA CFO emailed Austal a PowerPoint informing Austal that AUSA would likely
miss its 2016 EBIT target.
97. On December 10, 2015, Austal announced that its fiscal year 2016 earnings from
AUSA would be lower than fiscal year 2015. In response to this announcement, Austal’s
Ordinary Share on the ASX fell by AUD 0.58, a drop of 25.4%.
98. Further, by at least May 2016, Austal understood that committed costs on six LCS
ships (even numbers 6 through 16) were already much higher than the EACs. Thus, because
these costs were now committed not merely estimated costs, Austal had no choice but to include
this cost growth in its LCS EACs.
99. For several weeks in April through June 2016, Austal’s CFO came to AUSA and
worked with Perciavalle, Runkel, and other AUSA personnel to reset the LCS EACs. This
process led to Austal’s July 4, 2016 press release announcing that a “US$115 million (A$156
million) one off write back of work in progress (WIP) is required to recognize an increase in the
cost of construction.” The write back led to an EBIT loss of $89.6 million for Austal for fiscal
year 2016. Austal’s Ordinary Shares on the ASX dropped 8.26% following the announcement.

30

L. Defendants Engaged in Deceptive Acts.
100. As detailed above, Defendants used instrumentalities of interstate commerce in
connection with the purchase or sale of Austal’s securities. Defendants also engaged in deceptive
acts to defraud investors by manipulating the LCS EACs, in order to prematurely and
fraudulently recognize revenue for the periods listed above and allow Austal to meet or exceed
analyst consensus estimates for EBIT.
101. As detailed above, Perciavalle used devices, schemes or artifices to defraud in
connection with the purchase or sale of Austal’s securities and acted knowingly or with severe
recklessness. Perciavalle committed numerous deceptive acts in furtherance of this scheme.
Among other things, Perciavalle:
a. Manipulated EACs in response to pressure from Austal executives to meet
AUSA’s budgeted revenue and EBIT;
b. Directed AUSA personnel to falsify the EACs by, among other things: (i)
applying management challenges to the LCS material EACs calculated by the
Material Manager; and (ii) using either the bid LCS labor hours EACs or LCS
labor hours EACs that were lower than the LCS labor hours EACs calculated by
LCS personnel;
c. Concealed from the AUSA Board outside managers that Defendants were
artificially lowering the EACs and that AUSA was applying phony management
challenges to the LCS material EACs;
d. Ordered AUSA personnel to hide or delete specific references to management
challenges in various AUSA documents, including the Executive Review meeting
PowerPoints;
e. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud
when asked about AUSA’s EAC process, and purposely presenting the auditors
with a JHSV example rather than an LCS example to explain the EAC process
(because management challenges were not being applied to the JHSV EACs);

31

f. Failed to use or instruct others to use the “latest available, reliable information” to
calculate the EACs, even though he knew the EACs were objectively false;
g. Generated false financial information or instructed others to provide false
financial information that he knew (or was severely reckless in not knowing)
AUSA would include in its financial statements that it reported to Austal. He also
knew (or was severely reckless in not knowing) that Austal would report this false
financial information to the investing public; and
h.  Provided higher EAC numbers to the Navy than those that were included in
Austal’s financials, which demonstrated that he knew the higher labor EACs
submitted to the Navy were the better estimate.
102. As detailed above, Runkel used devices, schemes or artifices to defraud in
connection with the purchase or sale of Austal’s securities and acted knowingly or with severe
recklessness. Runkel committed numerous deceptive acts in furtherance of this scheme. Among
other things, Runkel:
a. Calculated the amount Defendants needed to manipulate the LCS EACs in order
for AUSA to hit its budgeted revenue and EBIT, including analyzing various
scenarios and the impact of including costs in the EACs on AUSA’s revenue and
EBIT;
b. Used disposable sticky notes to direct others to input manipulated numbers in an
attempt to conceal that Defendants were engaged in fraud;
c. Executed instructions from Perciavalle and the former AUSA CFO to artificially
and fraudulently lower the LCS EACs, including to apply phony management
challenges to the LCS material EACs;
d. Created a 90% Learning Curve for the LCS labor hours EACs, in an attempt to
justify the manipulated LCS labor hours EACs;
e. Prepared false EACs that were used to calculate AUSA’s revenue and EBIT,
including sending those to the AUSA controller;
f. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud
when asked about AUSA’s EAC process, and purposely presenting the auditors

32

with a JHSV example rather than an LCS example to explain the EAC process
(because management challenges were not being applied to the JHSV EACs);
g. Failed to use the “latest available, reliable information” or instructed others to not
use the “latest available, reliable information” to calculate the EACs, even though
he knew the EACs were objectively false; and
h. Generated false financial information or instructed others to provide false
financial information that he knew (or was severely reckless in not knowing)
AUSA would include in its financial statements that it reported to Austal. He also
knew (or was severely reckless in not knowing) that Austal would report this false
financial information to the investing public.
103. As detailed above, Adams used devices, schemes or artifices to defraud in
connection with the purchase or sale of Austal’s securities and acted knowingly or with severe
recklessness. Adams committed numerous deceptive acts in furtherance of this scheme. Among
other things, Adams:
a. Used disposable sticky notes to direct others to input manipulated numbers in an
attempt to conceal that Defendants were engaged in fraud;
b. Threatened the Material Manager to not discuss the management challenges with
the Austal CFO if she wanted to keep her job;
c. Admitted to the Material Manager that Austal’s stockholders did not know
artificially low EACs were being used to calculate and report revenue;
d. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud
when asked about AUSA’s EAC process, purposely presenting the auditors with a
JHSV example rather than an LCS example to explain the EAC process (because
management challenges were not being applied to the JHSV EACs), and requiring
the sign-off sheets to falsely document the manipulated EACs;
e. Falsely signed the LCS labor hours EAC sign-off sheet for the December 31,
2015 EACs, which documented the phony labor EACs that were used to calculate
AUSA’s half-year 2016 financials;

33

f. Conveyed instructions from Perciavalle and the former AUSA CFO to other
AUSA personnel to artificially and fraudulently lower the LCS EACs, including
to apply management challenges to the LCS material EACs;
g. Directed AUSA personnel to hide or delete specific references to management
challenges in various AUSA documents, including the Executive Review meeting
PowerPoints and the sign-off sheets;
h. Failed to use or instruct others to use the “latest available, reliable information” to
calculate the EACs, even though he knew the EACs were objectively false; and
i. Generated false financial information or instructed others to provide false
financial information that he knew (or was severely reckless in not knowing)
AUSA would include in its financial statements that it reported to Austal. He also
knew (or was severely reckless in not knowing) that Austal would report this false
financial information to the investing public.
104. The above referenced actions by Defendants were done with scienter and led to
Austal reporting material misstated financial statements to the investing public.
M. Defendants Received Compensation Tied to Financial Measures.
105. Defendants received compensation during the Relevant Period tied to AUSA and
Austal financial measures.
106. First, Defendants received bonuses pursuant to Austal’s Short Term Incentive
(“STI”) program. Perciavalle received $50,250 in STI for fiscal year 2013 tied solely to AUSA’s
EBIT, and received $80,000 in STI for fiscal year 2014 tied solely to AUSA’s EBIT margin.
Adams received $13,791 and Runkel received $13,520 in STI for fiscal year 2013, tied 80% to
AUSA’s EBIT and 20% to a department goal that directly contributed to AUSA’s EBIT. Adams
received at least $10,136 and Runkel received $9,779 in STI for fiscal year 2014, tied solely to
AUSA’s EBIT.
107. Second, Perciavalle received performance rights under Austal’s Long Term
Incentive (“LTI”) program, where each performance right converted at zero cost on a one-for-

34

one basis to Austal shares, subject to vesting and holding periods. The grant of LTI performance
rights was at the discretion of Austal’s board and vesting of performance rights was tied to two
Austal performance measures: (1) total shareholder return, defined as capital growth in the value
of Austal shares plus dividends paid; and (2) return on capital invested, defined as net operating
profit after tax exclusive of abnormal items. Perciavalle received LTI performance right grants
for fiscal years 2014 and 2015, which vested after between two and four years, based on meeting
the target total shareholder return and return on capital investment measures. Perciavalle
exercised his vested performance rights and sold these Austal shares.
N. Defendants Aided and Abetted Violations of Section 10(b).
1. AUSA and Austal Violated Section 10(b) and Rule 10b-5(a) and (c) of
the Exchange Act and Defendants Aided and Abetted AUSA’s and
Austal’s Violations.
108. AUSA and Austal, through Defendants, engaged in a deceptive scheme to
artificially reduce the LCS EACs in order to report more revenue to investors for the periods at
issue. As a result, AUSA and Austal violated Section 10(b) of the Exchange Act and Rules 10b-
5(a) and (c) thereunder.
109. Based on their titles and job functions, Defendants’ knowledge is imputed to
AUSA and Austal.
110. As described above, AUSA and Austal used instrumentalities of interstate
commerce in connection with the purchase or sale of Austal’s securities.
111. As detailed above, AUSA and Austal through the actions, knowledge, and
conduct of Defendants used devices, schemes or artifices to defraud in connection with the
purchase or sale of Austal’s securities and acted knowingly or with severe recklessness.
112. As detailed above, Defendants aided and abetted these violations by AUSA and
Austal by knowingly (or with severe recklessness) providing substantial assistance to those

35

violations. Among other things, Defendants conducted the EAC manipulation that led to
fraudulent revenue recognition and false financial statements.
O. Austal Violated Section 10(b) and Rule 10b-5(b) of the Exchange Act and
Defendants Aided and Abetted Those Violations.
113. Austal violated Section 10(b) and Rule 10b-5(b) of the Exchange Act by making
untrue statements of a material fact (or by omitting to state material facts necessary in order to
make the statements made, in the light of the circumstances under which they were made, not
misleading) in the above referenced filings, investor presentations, and press releases.
114. Based on their titles and job functions, Defendants’ knowledge is imputed to
Austal.
115. As described above, Austal used instrumentalities of interstate commerce in
connection with the purchase or sale of Austal’s securities.
116. As detailed above, Austal, through the actions, knowledge, and conduct of
Defendants, made misrepresentations of material fact, or omitted material fact, regarding its
revenues and EBIT contained in the reports, presentations, and press releases listed above, in
connection with the purchase or sale of Austal’s securities.
117. Defendants’ artificial reductions to the LCS EACs caused Austal to report
materially false and misleading information to analysts and the investing public. As set forth
above, if AUSA had instead used the Navy EACs, Austal would not have met or beat analyst
consensus estimates for EBIT for its fiscal year 2014, half-year 2015, and fiscal year 2015, and
would have had to report an EBIT loss for half-year 2016. Further, Austal would have missed the
consensus estimates for EBIT by wide margins. In addition, during the time period Austal was
making material misstatements and omissions, its Ordinary Shares’ price was materially affected
as it rose in value and during the time period that Austal started to disclose its fraud its stock

36

price was materially affected as it decreased in value. Lastly, reasonable investors would have
wanted to know that Defendants were intentionally manipulating the revenue and EBIT number.
118. As described above, Austal, through the actions, knowledge, and conduct of
Defendants, acted knowingly or with severe recklessness.
119. As detailed above, Defendants aided and abetted these violations by knowingly or
recklessly providing substantial assistance to those violations. Among other things, Defendants
conducted the EAC manipulation that led to Austal’s fraudulent revenue recognition and false
financial statements, investor presentations and press releases.
V. CLAIMS FOR RELIEF
First Claim for Relief
Fraud - Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) Thereunder (15 U.S.C.
§ 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c))
(All Defendants)
120. The SEC realleges and incorporates by reference in this claim for relief
paragraphs 1 through 119 as if fully restated herein.
121. Defendants, directly or indirectly, in connection with the purchase or sale of a
security, and by the use of means or instrumentalities of interstate commerce, of the mails, or of
the facilities of a national securities exchange, knowingly and severally recklessly: (a) employed
devices, schemes, or artifices to defraud; and (c) engaged in acts, practices, or courses of
business which operated or would operate as a fraud or deceit upon other persons.
122. By engaging in the conduct described above, Defendants directly or indirectly
violated, and unless restrained and enjoined will again violate, Section 10(b) of the Exchange
Act, 15 U.S.C. § 78j(b), and Rule 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c).

37

Second Claim for Relief
Fraud – Aiding and Abetting AUSA’s Violations of Exchange Act Section 10(b) and Rules
10b-5(a) and (c) Thereunder (15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c))
(Against All Defendants)
123. The SEC realleges and incorporates by reference in this claim for relief
paragraphs 1 through 119 as if fully restated herein.
124. As alleged above, AUSA violated Section 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c).
125. During the Relevant Period, Defendants knowingly or severely recklessly
provided substantial assistance to AUSA in furtherance of their violations alleged above.
126. By engaging in the conduct described above, Defendants aided and abetted and,
unless restrained and enjoined, will continue to aid and abet violations of Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5
(a) and (c).
Third Claim for Relief
Fraud – Aiding and Abetting Austal’s Violations of Exchange Act Section 10(b) and Rule
10b-5 Thereunder (15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b))
(Against All Defendants)
127. The SEC realleges and incorporates by reference in this claim for relief
paragraphs 1 through 119 as if fully restated herein.
128. As alleged above, Austal violated Section 10(b) of the Exchange Act, 15 U.S.C. §
78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
129. During the Relevant Period, Defendants knowingly or severely recklessly
provided substantial assistance to Austal in furtherance of their violations alleged above.

38

130. By engaging in the conduct described above, Defendants aided and abetted and,
unless restrained and enjoined, will continue to aid and abet Austal’s violations of Section 10(b)
of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
VI. PRAYER FOR RELIEF
WHEREFORE, the SEC seeks the following relief:
1. Find that Defendants committed the violations alleged in this Complaint;
2. Enter an injunction, in a form consistent with Rule 65 of the Federal Rules of
Civil Procedure and Eleventh Circuit case law, permanently enjoining Defendants and their
agents, servants, employees, attorneys, and accountants, and those persons in active concert or
participation with them, who receive actual notice of the Final Judgment by personal service or
otherwise, and each of them, from engaging in transactions, acts, practices, and courses of
business described herein, and from engaging in conduct of similar purport and object in
violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Exchange Act Rule 10b-
5, 17 C.F.R. § 240.10b-5, thereunder;
3. Order Defendants to disgorge ill-gotten gains received during the period of
violative conduct and pay prejudgment interest on such ill-gotten gains pursuant to Section
21(d)(5) and 21(d)(7) of the Exchange Act, 15 U.S.C. §§ 78u(d)(5) and (7);
4. Order Defendants to pay civil money penalties pursuant to Section 21(d)(3) of the
Exchange Act, 15 U.S.C. § 78u(d)(3);
5. Order that Defendants be permanently prohibited from acting as an officer or
director of any public company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. §
78u(d)(2); and
6. Grant such other and further relief as this Court may deem just and proper.

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VII. JURY DEMAND
The SEC demands a trial by jury on all claims so triable.
Dated: March 31, 2023  Respectfully submitted,

 By: s/ Sharan E. Lieberman
  Christopher E. Martin
Sharan E. Lieberman
U.S. Securities and Exchange Commission
1961 Stout Street, Suite 1700
Denver, CO 80294-1961
Telephone: 303-844-1106 (Martin)
          303-844-1036 (Lieberman)
          303-844-1000 (Main)

Email: [email protected]

 [email protected]

Attorneys for Plaintiff
U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT 
FOR THE SOUTHERN DISTRICT OF ALABAMA 

SOUTHERN DIVISION 
 

 
UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION, 

Plaintiff, 

v. 

CRAIG D. PERCIAVALLE, JOSEPH A. 
RUNKEL, and WILLIAM O. ADAMS, 

Defendants. 

 
 
 
 
 
Civil Action No. 23-cv-00109 
 

 

COMPLAINT AND JURY DEMAND 

Plaintiff, United States Securities and Exchange Commission (“SEC”), alleges as follows 

against Defendants Craig D. Perciavalle, Joseph A. Runkel, and William O. Adams (collectively, 

“Defendants”). 

I. INTRODUCTION 

1. From at least January 2013 through at least July 2016 (the “Relevant Period”), 

Defendants engaged in a deceptive scheme to fraudulently overstate revenues and earnings 

before interest and tax (“EBIT”). Defendants for Austal USA, LLC (“AUSA”), a wholly owned 

United States subsidiary of Austal Limited (“Austal”), an Australian defense contractor. 

Perciavalle was AUSA’s former president and Adams was the former director AUSA’s two 

shipbuilding programs. Runkel is AUSA’s current director of financial analysis. Defendants 

orchestrated the fraud in order to meet or exceed analyst consensus estimates for EBIT, a key 

financial metric used by analysts and investors.  

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2. Defendants’ misconduct involved using artificially low estimates at completion 

(“EAC”) for ships Austal built for the United States Navy (“Navy”). This misconduct allowed 

them to reduce the EACs by tens of millions of dollars for certain ships that AUSA built for the 

Navy. The artificially low EACs caused AUSA to report inflated revenue and EBIT to Austal. In 

turn, Austal publicly reported overstated revenue and EBIT in its filings that were available to 

United States investors.   

3. Defendants carried out the scheme by improperly reducing estimated costs from 

the EACs. In particular, Defendants instructed AUSA personnel responsible for calculating the 

EACs to arbitrarily lower them to meet AUSA’s budgets (and, in turn, increase revenue from 

period to period). Additionally, Defendants attempted to conceal the fraud by lying to AUSA’s 

auditors.   

4. As a result of the deceptive scheme, by no later than the financial period ended 

December 31, 2013 (reported on February 27, 2014) through at least the financial period ended 

June 30, 2015 (reported on August 26, 2015), Austal prematurely recognized revenue and met or 

exceeded analyst consensus estimates for EBIT.  

5. During the time period of these false financial filings, Austal’s stock price (as 

represented in Australian dollars (“AUD”)) increased in value – going from approximately 0.88 

AUD per share during late February 2014 to approximately 2.40 AUD per share by late 

November 2015.  

6. By engaging in this deceptive conduct, Defendants violated Section 10(b) of the 

Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Exchange Act Rules 

10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c). In addition, Defendants aided and 

abetted Austal’s misconduct by knowingly or severely recklessly providing substantial assistance 

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to Austal’s violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 

thereunder, and AUSA’s violations of Section 10(b) of the Exchange Act and Exchange Act 

Rules 10b-5(a) and (c) thereunder. Unless restrained and enjoined, Defendants will continue to 

violate the federal securities laws. 

II. DEFENDANTS 

7. Craig Perciavalle is 52 years old and resides in Mobile, Alabama. Perciavalle 

served as AUSA’s president from December 13, 2012, until his resignation on February 22, 

2021. As president of AUSA, Perciavalle exercised control over the management, general 

operations, and policies of AUSA, as well as the conduct which violated the securities laws. He 

is currently employed as a vice president and general manager at the U.S. subsidiary of a 

European public shipbuilding company. Perciavalle invoked the Fifth Amendment privilege 

against self-incrimination in testimony concerning the facts at issue in this Complaint. 

Perciavalle entered into tolling agreements with the SEC, tolling the statute of limitations from 

July 1, 2019 through February 28, 2023.  

8. Joseph Runkel is 54 years old and resides in Mobile, Alabama. Runkel has 

served as AUSA’s director of financial analysis since 2009. Runkel invoked the Fifth 

Amendment privilege against self-incrimination in testimony concerning the facts at issue in this 

Complaint. Runkel entered into tolling agreements with the SEC, tolling the statute of limitations 

from July 1, 2019 through February 28, 2023.  

9. William Adams is 63 years old and resides in Mobile, Alabama. Adams served 

as director of AUSA’s Littoral Combat Ships (“LCS”) program from 2010 through 

approximately July 2015, and then as director of AUSA’s Joint High Speed Vessels (“JHSV”) 

program. Adams left AUSA in January 2021. Adams is currently employed at a company that 

provides electrical components and support for shipbuilders. Adams invoked the Fifth 

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Amendment privilege against self-incrimination in testimony concerning the facts at issue in this 

Complaint. Adams entered into tolling agreements with the SEC, tolling the statute of limitations 

from January 12, 2021 through February 28, 2023.  

III. JURISDICTION AND VENUE 

10. The SEC brings this action, and the Court has jurisdiction over this action, 

pursuant to Exchange Act Sections 21(d)(1) (action for injunction in district court), 21(d)(3)(A) 

(action for penalty and disgorgement in district court), 21(d)(5) (action for equitable relief—

disgorgement—in district court), 21(d)(7) (action for disgorgement in district court), 21(e) 

(action for injunction in district court), and 27(a) (district court’s jurisdiction), 15 U.S.C. §§ 

78u(d)(1), 78u(d)(3)(A), 78u(d)(5), 78u(e), and 78aa(a).  

11. The SEC seeks: permanent injunctions under Sections 21(d) and (e) of the 

Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e); disgorgement of ill-gotten gains derived from the 

conduct alleged in the Complaint, plus prejudgment interest thereon, under Section 21(d)(5) and 

21(d)(7) of the Exchange Act, 15 U.S.C. §§ 78u(d)(5) and (7); civil penalties under Section 20(d) 

of the Exchange Act, 15 U.S.C. § 78u(d); and officer and director bars under Section 21(d)(2) of 

the Exchange Act, 15 U.S.C. § 78u(d)(2). The SEC also seeks any other relief the Court may 

deem appropriate.  

12. The Court has personal jurisdiction over Defendants, and venue is proper in the 

Southern District of Alabama, pursuant to Sections 21(d) and 27 of the Exchange Act, 15 U.S.C. 

§§ 78u(d) and 78aa, because many of the acts and transactions constituting violations of the 

Exchange Act occurred in this district. In addition, Defendants reside in this district, AUSA had 

its principal place of business in this district at the time of the conduct alleged, and one or more 

investors reside in this district. 

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13. In connection with the conduct alleged in this Complaint, Defendants, directly or 

indirectly, singly or in concert with others, made use of the means or instrumentalities of 

interstate commerce, the means and instruments of transportation or communication in interstate 

commerce, or the mails, including emails and telephone calls between Defendants and Austal 

executives in Australia, AUSA’s transmission of its management accounts via email to Austal, 

and Austal’s publication of its reports, presentations, and press releases on its website in 

Australia. 

IV. FACTUAL BACKGROUND 

A. Austal and AUSA’s Business  

14. Austal is a global defense prime contractor and a designer and manufacturer of 

defense and commercial ships. It is an Australian corporation with its principal place of business 

in Henderson, Australia. Its common stock (“Ordinary Shares”) trades in Australian dollars on 

the Australian Securities Exchange (“ASX”).   

15. Austal trades Level 1 sponsored American Depository Shares (“ADRs”) on the 

American over-the-counter (“OTC”) market under the symbol AUTLY. An ADR is a negotiable 

certificate issued by a U.S. depository bank representing a specified number of shares of a 

foreign company stock. Bank of New York Mellon issued the Austal ADRs. An Austal ADR is 

equivalent to ten shares of Austal stock trading on the ASX. Austal’s Ordinary Shares trading on 

the ASX also trade on the American OTC market under the symbol AUTLF.  

16. Austal’s ADRs, its Ordinary Shares trading on the ASX, and its Ordinary Shares 

trading on the American OTC are securities within the meaning of Section 3(a)(10) of the 

Exchange Act, which defines a “security” to include, among other things, “any…stock.” 

17. Austal’s fiscal year runs from July 1 to June 30, and it files half-year and fiscal 

year annual reports and press releases with the ASX, and posts those same reports, financial 

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statements, and press releases on its website (www.austal.com). Austal’s website is available for 

viewing by U.S. investors. A page on the Austal website entitled “U.S. Investors-ADR Program” 

provides information on Austal’s ADR program. 

18. Analysts who followed Austal’s stock compiled reports about its key financial 

metrics, including EBIT. EBIT is a proxy for earnings and analysts and investors use it to assess 

the performance of a company’s core operations without the costs of the capital structure and tax 

expenses affecting profit. Austal’s targeted EBIT was also important to Austal and AUSA. As 

further explained below, Austal directed that AUSA meet certain targets for EBIT, and Austal 

often touted the EBIT it achieved in its press releases. 

19. Austal prepared its financial statements in accordance with Australian Accounting 

Standards (“AAS”), and complied with International Financial Reporting Standards (“IFRS”). 

These accounting standards required Austal to use the “latest available, reliable information” to 

calculate the EACs. See International Accounting Standard (“IAS”) 8.32. Austal’s reports and 

financial statements, which Austal published on its website, represent that Austal’s financials are 

prepared in accordance with AAS and comply with IFRS.  

20. AUSA is an Alabama limited liability company, located in Mobile, Alabama, and 

is wholly owned by Austal. During the Relevant Period, AUSA was governed by its own Board 

of Managers, consisting of Austal’s chairman, Austal’s former chief executive officer (“CEO”),  

Perciavalle (in his role as AUSA’s president), AUSA’s former chief financial officer (“CFO”) 

(who is deceased), and three outside managers. AUSA also prepared its financial statements to 

comply with IFRS. 

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http://www.austal.com/


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21. During the Relevant Period, AUSA’s financials were reported as part of Austal’s, 

both as part of Austal’s consolidated financials and separately in a discussion of AUSA’s 

operations. They also appeared in Austal’s half-year and annual reports.  

22. During the Relevant Period, AUSA generated more than 75% of Austal’s 

revenue. AUSA generated this revenue largely from AUSA’s shipbuilding contracts with the 

Navy.  

B. Defendants’ Responsibilities at AUSA 

23. During the Relevant Period, as AUSA president, Perciavalle ran and was 

ultimately responsible for all aspects of AUSA, including AUSA’s shipbuilding and AUSA’s 

financials. Perciavalle was the top AUSA executive, and all other AUSA executives reported to 

him, including the former AUSA CFO.  

24. During the Relevant Period, as AUSA’s director of financial analysis, Runkel was 

part of AUSA’s Finance Department and reported to the former AUSA CFO. Runkel received 

EAC data from AUSA’s cost account managers who calculated the EACs, and was then 

responsible for finalizing the EACs that were used for AUSA’s financials. Runkel also handled 

AUSA’s budgeting, forecasting, and other financial data analysis. Runkel had the added 

responsibility of overseeing AUSA’s Earned Value Management System (“EVMS”), the system 

AUSA used for measuring project performance and progress. The Navy required AUSA to use 

EVMS to report its progress on the shipbuilding contracts to the Navy.  

25. During the beginning of the Relevant Period, Adams was Director of the LCS 

program, the AUSA shipbuilding program in which AUSA manipulated EACs. As the director 

of the LCS program, Adams ran and was responsible for all aspects of construction of the ships 

within the program. Adams was director of the LCS program until approximately July 2015, 

when he became the director of the other AUSA shipbuilding program, the JHSV program. 

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Adams’ involvement in the LCS program continued into at least early 2016, as he transitioned 

the incoming LCS director into his former role. As director of both the LCS and JHSV programs, 

Adams reported to Perciavalle.  

C. Austal’s Navy Contracts and Revenue Recognition 

26. During the Relevant Period, AUSA served as the prime contractor on Navy 

contracts to build the ships for the LCS and JHSV programs, and built both ships at its Mobile, 

Alabama shipyard. LCS ships are 418-foot aluminum combat ships. JHSV ships are 338-foot 

steel transport vessels.  

27. In December 2010, the Navy awarded Austal contracts to build LCS ships as the 

prime contractor. The ships are numbered using only even numbers. During the Relevant Period, 

AUSA built and reported on eleven ships, LCS 6 through 26. AUSA continues to build these 

ships for the Navy.  

28. During the Relevant Period, Austal and AUSA used EACs as part of a formula to 

recognize revenue. The EAC for each ship is the estimate of total costs for the completed ship. 

EACs consist of material costs (such as the cost of aluminum and steel), labor costs (such as the 

cost to pay employees and contractors) and overhead expenses already incurred, plus estimated 

future material, labor, and overhead costs to complete the ship. Each ship had its own EAC 

during construction and the EACs for the ships in progress were combined to generate an overall 

EAC. 

29. The total revenue Austal received for each ship was based on the Navy contract, 

and Austal recognized that revenue period by period based on progress towards completion, with 

Austal recognizing the full amount on completion. Progress was determined by measuring 

expenses actually incurred to date compared to the EAC for the ship. As the material, labor, and 

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overhead costs were actually incurred, a lower EAC number caused Austal to show greater 

progress towards completion and, as a result, recognize more revenue during that period.  

30. AUSA calculated monthly financial numbers, including revenue and profit, which 

it reported to Austal monthly in spreadsheets called “Management Accounts.” Austal 

incorporated the financial data in the Management Accounts into Austal’s half-year and annual 

reports.  

31. In addition to its public financial reporting, AUSA’s Navy contracts required 

AUSA to submit certain monthly reporting to the Navy on the status of each ship’s progress 

through the EVMS. These monthly reports, called “Contract Performance Reports” (“CPRs”), 

were prepared by AUSA personnel supervised by Runkel and included a latest revised estimate 

EAC (hereinafter, the “Navy EACs”). 

D. Austal’s Budgeted Revenue and EBIT 

32. Austal had an annual budgeting process and it budgeted AUSA to generate certain 

amounts of revenue and EBIT for each reporting period. By at least the beginning of, and 

continuing throughout the Relevant Period, Austal pressured AUSA to meet its budgeted revenue 

and EBIT. For example, on or about February 27, 2013, Austal’s former CEO emailed 

Perciavalle in response to an email informing Austal that AUSA’s EBIT and revenue were less 

than the budget for the month. Austal’s former CEO scolded Perciavalle about AUSA’s “under 

budget performance,” urged him to “hit the quarter and year end budget numbers,” and warned 

him that “investors . . . expect us to keep our promise . . . and will not tolerate under delivery.” 

Perciavalle responded: “I fully understand the importance in meeting our commitments and will 

continue to drive toward that end.”  

33. Similarly, on or about January 9, 2015, Perciavalle texted the former AUSA CFO 

a copy of certain AUSA EBIT targets that Austal’s former CEO had given Perciavalle for half-

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year 2015 and fiscal year 2015. Perciavalle sent these target numbers to former AUSA CFO with 

direction to meet these targets. Perciavalle and the former AUSA CFO continued to text each 

other and discussed how to manipulate the EACs to meet the target EBIT numbers.  

34. The manipulation was successful as AUSA’s final EBIT for half-year and fiscal 

year 2015 exceeded AUSA’s EBIT listed in Perciavalle’s text.   

E. Defendants Knew AUSA Could Not Achieve Austal’s Financial Targets.  

35. During the Relevant Period, Defendants knew, or were severely reckless in not 

knowing, that AUSA could not achieve Austal’s financial targets. AUSA’s initial LCS bid did 

not sufficiently account for rising costs, change orders, or other issues that contributed to cost 

overruns. AUSA’s budgeted revenue and EBIT for period to period, however, was based on the 

LCS bid costs, and so the rising costs of building the LCS meant that AUSA was not meeting its 

budgeted revenue and EBIT. 

36. During the build of LCS 6, and at the latest by December 2013, it was clear to 

Perciavalle, Runkel, and Adams that it would be impossible to meet Austal’s demands to 

generate enough revenue in a reporting period to achieve the targeted EBIT. This was because 

AUSA’s actual costs to build LCS 6 far exceeded AUSA’s budgeted costs in its Navy bid.  

37. Perciavalle received detailed information, including in weekly LCS meetings, 

from Runkel, Adams, and others, which showed that the estimated material and labor costs 

exceeded the costs on which AUSA had based its bid for the LCS contract.  

38. Additionally, Defendants saw detailed information showing that the cost to build 

each new LCS ship was rising. For example, AUSA had to purchase over twice the amount of 

aluminum sheets for each LCS ship than initially budgeted because it underestimated the amount 

aluminum sheets each LCS ship would require.   

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39. AUSA’s labor costs were also higher than the labor bid costs and were rising with 

each LCS ship. For example, it was difficult to find welders with experience welding aluminum, 

so instead of hiring welders who could immediately start doing the job necessary to complete the 

ships, AUSA spent labor hours teaching those workers aluminum welding. Also, AUSA 

struggled to hire and retain the skilled labor needed to build the ships.  

F. Defendants’ Deceptive Conduct Caused Austal to Prematurely Recognize 
Revenue. 

  
1. Manipulation of Material EACs 

40. AUSA and Defendants manipulated the LCS EACs related to material costs by 

failing to include all the estimated cost growth in the EACs. 

41.  AUSA and Defendants calculated the LCS material EACs based on: (a) actual 

costs of material already purchased; and (b) estimated costs of material to be purchased to 

complete the LCS. One of the AUSA LCS material manager’s (“Material Manager”) duties was 

to calculate the EACs.  

a. The Material Manager Documented Defendants’ Demands to 
Falsify the EACs. 

42. At various times during the Relevant Period, Runkel and Adams instructed the 

Material Manager to falsely reduce the LCS material EACs below the true costs. The Material 

Manager wanted AUSA to recognize the actual cost growth and to use the EACs she calculated, 

which she wanted to base on the “latest available, reliable information.” Instead, Adams and 

Runkel provided AUSA’s Material Manager with manufactured EACs and directed her to use 

the manipulated numbers to reach Austal’s financial targets. Runkel and Adams provided the 

manipulated EAC numbers to the Material Manager using disposable sticky notes to conceal the 

fraud and make sure it was untraceable in AUSA’s electronic or physical records.  

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43. The Material Manager resisted these directives to falsely reduce the LCS material 

EACs below the true costs by, among other things, discussing her opposition with Runkel and 

Adams, and questioning the use of phony EACs.  

44. On or about January 10, 2013, the Material Manager wrote in an email to herself 

that Runkel and the former AUSA CFO instructed her to lower the EACs that she had calculated. 

The Material Manager’s memo stated: “My numbers were good but Runkle [sp] said lower [the 

Estimate to Completion] . . . .” The Estimate to Completion (“ETC”) is the estimated amount of 

future expenses needed to complete the ship. This amount is added to costs already incurred to 

calculate the EAC.  

b. Defendants Used Phony “Challenges” to Hide Cost Growth. 

45. During the Relevant Period, both Perciavalle and the former AUSA CFO told 

Runkel and Adams that AUSA was not going to include all the estimated material cost growth in 

the EACs.  

46. In order to conceal the true estimated cost growth of the materials, Perciavalle 

instructed various AUSA personnel, including Runkel and Adams, to improperly reduce the 

EACs, terming these reductions “management challenges” or “program challenges.” Defendants 

designed these “challenges” to appear as legitimate ways to reduce the LCS material costs.  

47. In reality, however, these so-called “challenges” were equal to the amount of LCS 

estimated cost growth that Defendants did not want to include in that financial period’s EAC. 

The amount of “challenges” increased over time so that almost none of the additional estimated 

cost growth was included in the EACs. 

48. For example, on or about April 18, 2013, the Material Manager emailed herself to 

document that Adams instructed her to manipulate the LCS EACs through a “challenge” process. 

She wrote “[t]oday we were asked by [Adams] to modify the LCS EAC’s… I explained to 

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[Adams] that he needed to give me reasons for the reductions and I did not want to modify the 

values to meet a number.” She further described that Adams “said he will take challenges such as 

material returns . . . to make up the deltas” and explained that she “needed the board numbers to 

know what numbers [she] had to hit.”  

49. Under the applicable international accounting standard, Defendants must prepare, 

but failed to do so, EACs based on the “latest available, reliable information.” See IAS 8.32.  

50. Nonetheless, Perciavalle’s “management challenges” – that Runkel and Adams 

implemented – were unsupported and not tied to specific, realistic, or achievable costs of the 

materials required to build each LCS. Rather, the “challenges” were the estimated cost growth 

that Perciavalle, Adams, and Runkel did not want to include in the EACs sent to Austal.  

51. For example, on or about July 5, 2013, the Material Manager sent an email to a 

colleague that “[Perciavalle] wants all growth moved to challenges as an offset.” This directive 

was not tied to any true, actual, or realistic reduction.  

52. Although the Material Manager and other LCS program personnel told 

Perciavalle and Adams the challenges were unrealistic, Perciavalle directed the Material 

Manager to continue to apply the challenges to the total material EACs that were reported to 

Austal.  

53. In the spring of 2016, when the Materials Manager would complain, Adams told 

the Material Manager that if she wanted to keep her job, she should not to discuss the 

management challenges with the Austal CFO. 

54. The Material Manager reduced the EAC calculations as instructed, but also 

maintained a spreadsheet to memorialize the material EACs she calculated as compared to the 

artificially reduced material EACs that AUSA reported to Austal. 

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c. Defendants Attended Weekly Meetings to Discuss the Phony 
“Challenges” 

55. On every Friday throughout the Relevant Period, AUSA had weekly LCS 

Executive Review Meetings, multi-hour meetings attended by AUSA personnel involved in all 

aspects of the LCS shipbuilding process, who presented on the status of each LCS under 

construction. Perciavalle led these weekly LCS Executive Review Meetings; Adams always 

attended until approximately June or July 2015 when he transferred to the JHSV program; and 

Runkel attended at least some of these meetings. These meetings included weekly PowerPoint 

presentations containing slides with the monthly material EACs, and documented both the 

Material Manager’s LCS EACs as well as the challenges applied to lower them. 

56. For example, the August 2, 2013 Executive Review Meeting featured a chart 

showing the material EAC for LCS 6 for June 2013. After costs increased by at least $2 million, 

the chart listed a “Program Challenge,” showing a $2 million reduction from the material EACs 

for LCS 6. This “Program Challenge,” however, was not tied to any specific reduction in cost 

and did not explain how the estimated material costs to finish the ship might be lowered by $2 

million.  

57. A year later, a similar slide presented at August 1, 2014 Executive Review 

Meeting included the LCS 6 material EACs for June 2014. The slide referred to a “Program 

Offset,” rather than a Program Challenge, but contained the same type of information and 

functioned like the Program Challenge. Perciavalle directed the Material Manager, through an 

instruction to Adams, to delete the explicit reference to a “Program Challenge” in the slides to 

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conceal from others not involved in the EAC process that Defendants were applying an offset to 

arbitrarily lower the EACs.  

58. The weekly LCS Executive Review presentations throughout the Relevant Period 

demonstrate Defendants’ knowledge that: (1) the estimated material costs to complete the LCS 

were increasing over time; and (2) the phony “challenges” did not lead to cost reductions 

(because, they were unsupported amounts Defendants used to justify lowering the EACs). 

2. Manipulation of Labor EACs 

59. AUSA’s estimated labor costs to build a LCS ship were higher than the estimated 

labor costs that it used in the Navy bid. Instead of including these costs in the LCS labor EAC, 

AUSA and Defendants manipulated the labor hours (which hours were then converted to a labor 

cost EAC) to more closely align them with the amount used for AUSA’s Navy bid.  

a. Defendants Were Aware of the Rising Labor Costs. 

60. From approximately mid-2015 forward, Perciavalle was aware of the rising labor 

cost numbers because the new LCS program director met weekly with him to discuss the rising 

costs.  

61. Additionally, the Executive Review Meeting presentations referenced above (see 

¶ 55)  – that Defendants usually attended – contained PowerPoint slides with the weekly labor 

hours data and labor EACs, showing: (1) that the labor EACs were much higher than the bid 

labor EACs and continuing to grow; and (2) a trend of increased labor hours as ships neared 

completion. 

62. January 2015 text messages between Perciavalle and the former AUSA CFO (see 

¶¶ 33 and 78) also show that Defendants intentionally manipulated the labor EACs because they 

were too high. In those messages, Perciavalle asks the former AUSA CFO whether it easier to 

manipulate material or labor.  

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63. These same text messages demonstrate that Perciavalle consulted with Adams and 

Runkel on how to manipulate the EACs. 

b. Defendants Knew that Labor Costs Were Coming In Higher 
than the Navy Bid. 

64. During the Relevant Period, AUSA used different methods to estimate the labor 

hours (and so labor EACs) to complete the LCS ships. These methods usually showed the labor 

hours necessary to build the ships in the LCS program were higher than the Navy bid. 

Nevertheless, Defendants continued to use either only the labor hours already incurred on the 

earlier ships (which they had to include in the LCS labor EACs) or, for the ships early in 

construction, the Navy bid labor EACs.  

65. Perciavalle was aware that the EACs differed depending on the calculation 

method. Indeed, Perciavalle instructed AUSA personnel to submit the higher labor EAC numbers 

to the Navy to support AUSA’s shipbuilding schedule. Although Defendants received and 

analyzed this data, AUSA initially continued to base the LCS labor EACs on the hours that were 

included in the original LCS Navy bid.  

c. Defendants Manipulated Labor EACs. 

66. Later in the Relevant Period, in an attempt to estimate labor costs for the ships 

early in their construction cycle, Runkel applied a “learning curve” to the labor hours required to 

build subsequent LCS ships under the Navy contract. This “learning curve” method assumed that 

labor hours would significantly decrease on each subsequent ship. More specifically, Runkel’s 

90% “learning curve” assumed that the labor hours (and so EACs) of each subsequent LCS ship 

would be 90% of the labor costs for the LCS ship built before it (“90% Learning Curve”). In 

reality, the 90% Learning Curve was just another way that the Defendants tried to justify a 

reduction in the overall labor EACs to meet Austal’s targets.   

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67. Perciavalle and Runkel began using Runkel’s estimated labor hours based on the 

90% Learning Curve for the labor EACs. However, applying the 90% Learning Curve to ships 

early in construction resulted in labor hours that were completely inconsistent with the labor 

hours actually used to build the first few LCS ships.  

68. Further, the new LCS program director, who took over for Adams in 

approximately July 2015, told Perciavalle and Runkel that even using a 90% Learning Curve for 

labor hours would yield inaccurately low EACs.  

69. For example, on or about October 21, 2015, the new LCS program director 

emailed the LCS vice president that he had reported his estimates for labor hour EACs for LCS 8 

through 24 to Runkel, and they were hundreds of thousands of labor hours above the 90% 

Learning Curve numbers, which AUSA used to calculate revenue and EBIT. In the email, the 

new LCS program director explained that using his accurate numbers was “ugly as it relates to 

EBIT.” The LCS vice president responded: “[Perciavalle] just grabbed me after speaking to 

[Runkel]…[Perciavalle] not happy with the numbers and advised [Runkel to] stick with 90% as 

worst case.”  

70. Several weeks later, on or about November 9, 2015, Runkel emailed Perciavalle 

and the former AUSA CFO a chart of the LCS labor hours, showing various calculations of the 

LCS labor hours for each LCS ship, including the 90% Learning Curve. This chart showed that 

for the nearly completed LCS 6 and 8, the incurred labor hours were far above the original Navy 

bid labor EACs. In fact, the cost of the incurred labor hours were already equal to the highest 

possible cost estimated by AUSA. Defendants intentionally ignored this information and 

continued to use labor EACs for subsequent ships that were far below the labor costs needed to 

build LCS 6 and 8, and far below the highest possible cost estimates. 

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G. Defendants Hid the EAC Manipulation From AUSA’s Auditor. 

71. During the Relevant Period, Austal was audited by a global accounting firm in 

Perth, Australia. As part of that audit, the accounting firm’s U.S. affiliate conducted yearly audits 

and half-year reviews of AUSA, and reported its findings and conclusions for each audit and 

review to the auditors in Perth. Further, the U.S. auditors also issued an opinion on AUSA’s 

separate financial statements for fiscal years 2014 through 2016.  

72. Throughout the Relevant Period, Defendants did not disclose their EAC 

manipulation to AUSA’s auditor and, in fact, took steps to hide it.  

73. First, in at least June 2014, as part of its 2014 audit of AUSA, the AUSA auditor 

asked AUSA to explain its EAC process. In response to this request, in or around July 11, 2014, 

Defendants and others met to prepare an explanation. Rather than disclose how they manipulated 

the LCS EACs to meet EBIT targets, Defendants deliberately chose not to discuss the EAC 

process using an LCS ship. Instead, the Defendants explained the EAC process using a JHSV 

ship because AUSA was not applying the “management challenges” to the JHSV EACs. At the 

July 2014 meeting with the auditors, Adams and Runkel, only presented a JHSV PowerPoint to 

the auditors and concealed AUSA’s use of a “management challenge” in the calculation of the 

LCS EACs. 

74. Second, for at least every annual audit conducted by AUSA’s auditors during the 

Relevant Period, Runkel and Adams completed written questionnaires about the LCS program 

that did not disclose AUSA’s use of management challenges and reported false EACs. Runkel 

and Adams also met in person with AUSA’s auditors for every half-year review and annual audit 

to discuss the LCS EACs, and similarly failed to disclose management challenges or that Austal 

was using false EACs.  

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75. Third, AUSA started in approximately December 2012 using EAC “sign-off” 

sheets reflecting the EACs that AUSA used to calculate its revenue and gross profit in its 

financial statements. AUSA used these sign-off sheets to show its auditor that its EACs were 

legitimate. There were sign-off sheets for both material EACs and labor hours. Each sign-off 

sheet listed a specific EAC and included a signature line for each LCS ship under construction. 

Some of the project managers (who supervised the building of one LCS ship) initially added 

disclaimer notes highlighting cost growth that was omitted from the EACs. AUSA senior 

management, including Adams, stopped this practice by ordering the project managers not to 

include the notes explaining that potential cost growth was not included in the EACs. The clean 

“sign-off” sheets (without disclaimers or notes) effectively concealed from the auditors the 

fraudulently low EACs. 

76. During the Relevant Period, Adams knew that some of the project managers were 

uncomfortable with signing the sign-off sheets because the EAC numbers were inaccurate. 

Rather than forcing these project managers to sign them anyway, Adams sometimes signed the 

LCS sign-off sheet.  

77. In approximately January 2016, Adams signed the LCS labor hours EAC sign-off 

sheet for the December 31, 2015 EACs. At the time Adams signed this sign-off sheet, he was no 

longer the LCS director. This sign-off sheet documented the phony labor EACs that AUSA used 

to calculate its half-year 2016 financials. Adams concealed from the AUSA auditors that project 

managers did not want to sign the sign-off sheets.  

78. Perciavalle discussed his intent to deceive the auditors with the former AUSA 

CFO. In the January 2015 text messages between Perciavalle and the former AUSA CFO (see ¶¶ 

33 and 62), the former AUSA CFO stated “[AUSA’s auditor] is going to take some 

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convincing…started with the easier stuff to defend and they’ll want to understand the math” of 

the EAC changes AUSA was making, and Perciavalle responded: “I will definitely defer to you 

on how best to sell to them.” Perciavalle further suggested trying to keep various EAC changes 

“mutually exclusive otherwise it will raise the flag higher.” The former AUSA CFO also 

referenced Adams’ involvement with AUSA’s auditor, stating that they needed to discuss with 

Adams first because AUSA’s auditor “may well want a call with [Adams] to validate.”  

79. Finally, Perciavalle signed management representation letters sent to AUSA’s 

auditors in which he made numerous false representations. In the management representation 

letters for the audit of AUSA’s Management Accounts for fiscal year 2014 (dated August 15, 

2014) and fiscal year 2015 (dated on or about August 24, 2015), Perciavalle falsely represented 

that: (1) AUSA had fulfilled its responsibilities for preparation of and fair presentation of the 

financial statements in conformity with IAS and Austal accounting policies; (2) there were no 

material transactions that were not properly recorded in AUSA’s accounting records; (3) the 

significant assumptions used by AUSA in making accounting estimates were reasonable and 

supportable; (4) AUSA properly recognized vessel construction revenue using the percentage of 

completion method; (5) all contract-related estimates represented management’s best estimate; 

and (6) he had no knowledge of any fraud or suspected fraud involving management or other 

employees with a significant role in AUSA’s financial reporting. 

80. In the management representation letters for the interim review of AUSA’s 

Management Accounts for half-year 2014 (dated February 18, 2014) and half-year 2015 (dated 

February 25, 2015), Perciavalle falsely represented that: (1) AUSA had fulfilled its 

responsibilities for preparation of and fair presentation of the financial statements in conformity 

with IAS and Austal accounting policies; (2) he had no knowledge of any fraud or suspected 

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fraud involving management or other employees with a significant role in AUSA’s internal 

controls or in which the fraud could have a material effect on AUSA’s Management Accounts; 

and (3) the significant assumptions used by AUSA in making accounting estimates were 

reasonable and supportable.  

81. In the management representation letter for the interim review of AUSA’s 

Management Accounts for half-year 2016 (dated February 19, 2016), Perciavalle falsely 

represented that: (1) AUSA had fulfilled its responsibilities for preparation of and fair 

presentation of the financial statements in conformity with IFRS and Austal accounting policies; 

(2) he had no knowledge of any fraud or suspected fraud involving management or other 

employees with a significant role in AUSA’s internal controls or in which the fraud could have a 

material effect on AUSA’s Management Accounts; (3) the significant assumptions used by 

AUSA in making accounting estimates were reasonable and supportable; (4) there were no 

material transactions that were not properly recorded in AUSA’s accounting records; (5) AUSA 

properly recognized vessel construction revenue using the percentage of completion method; and 

(6) all contract-related estimates represented management’s best estimate.  

82. In the management representation letter for the audit of AUSA’s financial 

statements for fiscal year 2015 (dated September 8, 2015), Perciavalle falsely represented that: 

(1) AUSA had fulfilled its responsibilities for preparation of and fair presentation of the financial 

statements in conformity with IAS; (2) there were no material transactions that were not properly 

recorded in AUSA’s accounting records; (3) the significant assumptions used by AUSA in 

making accounting estimates were reasonable and supportable; (4) AUSA properly recognized 

vessel construction revenue using the percentage of completion method; (5) all contract-related 

estimates represented management’s best estimate; and (6) he had no knowledge of any fraud or 

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suspected fraud involving management or other employees with a significant role in AUSA’s 

internal controls or in which the fraud could have a material effect on AUSA’s financial 

statements. 

H. Due to Defendants’ Deceptive Conduct, Austal Made False Filings, Press 
Releases, and Investor Presentations. 

83. Defendants and AUSA reported their financials to Austal. Austal reported its 

financials on Austal’s website, in press releases, and in public filings made in Australia on the 

ASX. 

84. Austal’s filings, press releases, and investor presentations that contained or 

discussed Austal’s financial statements and results and the amount Austal’s revenue and EBIT, 

and included Austal’s fraudulent revenue and EBIT, at least the following:  

Half-year 2014, ending December 31, 2013 

a. Austal Half-Year Report, 31 December 2013, issued on February 27, 2014, 

attaching financial statements and containing discussion of financial results;  

b. Austal H1 FY14 results presentation, issued on February 27, 2014, containing 

discussion of financial results; and  

c. Austal press release “Austal Reports Strong Growth,” issued on February 27, 

2014, containing discussion of financial results.  

The financial statements, report, results presentation, and press release falsely reported, among 

other things, that for half-year 2014, Austal’s revenue was approximately AUD 507.6 million 

(approximately $450.3 million) and EBIT was AUD 18.7 million (approximately $16.5 million). 

For this period, Austal reported that AUSA had approximately AUD 419.8 million 

(approximately $372.5 million) in revenue and AUSA EBIT was AUD 26.9 million 

(approximately $23.9 million). This information came from the Management Accounts that 

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Perciavalle directed AUSA to provide to Austal. As explained in the chart below, see infra ¶ 89, 

Austal’s results, were overstated by approximately $14.52 million for revenue and EBIT. 

Fiscal year 2014, ending June 30, 2014 

a. Austal 2014 Annual Report, issued on August 27, 2014, attaching financial 

statements and containing discussion of financial results;  

b. Austal FY2014 results presentation, issued on August 27, 2014, containing 

discussion of financial results; and  

c. Austal press release “Austal Delivers Record Revenue and Reduces Net Debt by 

50%,” issued on August 27, 2014, containing discussion of financial results.  

The financial statements, report, results presentation, and press release falsely reported, among 

other things, that for fiscal year 2014, Austal’s revenue was approximately AUD 1.12 billion 

(approximately $1.05 billion) and EBIT was AUD 55.6 million (approximately $52.3 million). 

For this period, AUSA reported approximately AUD 933.6 million (approximately $879.4 

million) in revenue and EBIT was AUD 61.7 million (approximately $58.1 million). As 

explained in the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately 

$33.53 million for revenue and EBIT. 

Half-year 2015, ending December 31, 2014 

a. Austal 31 December 2014 Half-Year Report, issued on February 25, 2015, 

attaching financial statements and containing discussion of financial results;  

b. Austal FY2015 H1 results presentation, issued on February 25, 2015, containing 

discussion of financial results; and  

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c. Austal press release “Austal Delivers Revenue and Earnings Growth; Returns to 

Dividends,” issued on February 26, 2015, containing discussion of financial 

results.  

The financial statements, report, results presentation, and press release falsely reported, among 

other things, that for half-year 2015, Austal’s revenue was approximately AUD 680.2 million 

(approximately $554.8 million) and EBIT was AUD 45.0 million (approximately $36.7 million). 

For this period, AUSA reported approximately AUD 498.3 million in revenue (approximately 

$406.4 million) and EBIT was AUD 27.4 million (approximately $22.4 million). As explained in 

the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $17.01 million 

for revenue and EBIT. 

Fiscal year 2015, ending June 30, 2015 

a. Austal 2015 Annual Report, issued on August 26, 2015, attaching financial 

statements and containing discussion of financial results;  

b. Austal FY2015 results presentation, issued on August 26, 2015, containing 

discussion of financial results; and  

c. Austal press release “Austal Delivers Record Profit, Increases Dividend,” issued 

on August 26, 2015, containing discussion of financial results.  

The financial statements, report, results presentation, and press release falsely reported, among 

other things, that for fiscal year 2015, Austal’s revenue was approximately AUD 1.41 billion 

approximately $1.08 billion) and EBIT was AUD 84.8 million (approximately $64.9 million). 

For this period, AUSA reported approximately AUD 1.12 billion in revenue (approximately 

$857.4 million) and EBIT was AUD 58.4 million (approximately $44.7 million). As explained in 

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the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $14.15 million 

for revenue and EBIT. 

Half-year 2016, ending December 31, 2015 

a. Austal 31 December 2015 Half-Year Report, issued on February 23, 2016, 

attaching financial statements and containing discussion of financial results;  

b. Austal FY2016 H1 results presentation, issued on February 23, 2016, containing 

discussion of financial results; and  

c. Austal press release “Austal Delivers Strong Cashflow, Doubles Interim 

Dividend,” issued on February 23, 2016, containing discussion of financial 

results.  

The financial statements, report, results presentation, and press release falsely reported, among 

other things, that for half-year 2016, Austal’s revenue was approximately AUD 747.4 million 

(approximately $544.7 million) and EBIT was AUD 29 million (approximately $21.1 million). 

For this period, AUSA reported approximately AUD 638.4 million in revenue (approximately 

$465.2 million) and EBIT was AUD 26.9 million (approximately $19.6 million). As explained in 

the chart below, see infra ¶ 89, Austal’s results, were overstated by approximately $26.33 million 

for revenue and EBIT. 

85. Defendants understood that the manipulated EACs directly impacted Austal’s 

financial statements during the Relevant Period. Perciavalle and Runkel were directly involved 

with AUSA’s Management Accounts sent to Austal. Thus, they knew, or were severely reckless 

in not knowing, that AUSA reported false revenue and EBIT (based on artificially low EACs) to 

Austal, and that in turn Austal used AUSA’s false financial data to support Austal’s financial 

statements. Adams knew, or was severally reckless in not knowing, that the false EACs would 

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ultimately impact Austal’s financial statements. Adams admitted to the Material Manager that 

Austal’s stockholders did not know that AUSA, and so Austal, were using artificially low EACs 

to calculate revenue. 

I. The Manipulated EACs Were Much Lower than the EACs AUSA Submitted 
to the Navy. 

86. Under Runkel’s supervision, AUSA sent the Navy monthly CPRs, which included 

the Navy EACs. These Navy EACs reflected higher LCS EACs than the EACs that AUSA used 

to calculate its revenue and EBIT. Among other things, these CPRs supported AUSA’s costs, 

progress, and timing of building the LCS ships. Thus, AUSA had an incentive to report more 

accurate EACs to the Navy in order to explain any delays in completion and to justify any 

attempt to obtain payments from the Navy in excess of the contract amount.  

87. As set forth in the chart below (all numbers below are approximate), comparing 

the Navy EACs to the LCS EACs that AUSA used to calculate revenue and profit and reported 

to Austal demonstrates that AUSA understated the LCS EACs by tens of millions of dollars by at 

least its half-year 2014:  

 12/31/13 
HY14 

6/30/14 
FY14 

12/31/14 
HY15 

6/30/15 
FY15 

12/31/15 
HY16 

AUSA’s 
Reported LCS 
EACs 

$1.02 
billion 

$1.50 billion $2 billion $2.53 billion $2.21 billion 

Navy EACs  $1.05 
billion 

$1.56 billion $2.10 billion $2.62 billion $2.36 billion 

Difference  ($37.75 
million) 

($58.18 
million) 

($103.87 
million) 

($96.40 
million) 

($141.93 million)  

 

 

 

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J. AUSA’s False LCS EACs Allowed Austal to Meet or Beat Analyst Consensus 
Estimates for EBIT. 
 

88. Using the manipulated LCS EACs resulted in Austal overstating revenue and 

profit for at least the half and annual year periods set out in the chart below, thus allowing it to 

generally meet or beat analyst consensus for EBIT, Austal’s most important financial metric.  

89. If AUSA had used the Navy EACs, Austal would have missed, by wide margins, 

analyst consensus estimates for EBIT for its half-year 2014, fiscal year 2014, half-year 2015, and 

fiscal year 2015, as well as reported an EBIT loss for half-year 2016, as reflected in the below 

chart: 

 Austal’s Reported 
EBIT  

Analyst Consensus 
EBIT  

Austal’s EBIT if 
used the Navy EAC 

Half-year 2014 $22.81 million $20.67 million $8.29 million 

Fiscal year 2014 $61.51 million $56.94 million $27.98 million  

Half-year 2015 $27.49 million $27.73 million $10.48 million 

Fiscal year 2015 $56.04 million $54.93 million  $41.89 million  

Half-year 2016 $21.13 million  $23.32 million $(5.20) million  

90. All numbers in the above chart are approximate and have been converted into US 

Dollars from AUD. Further, the analyst consensus EBIT and Austal’s reported EBIT numbers 

listed in the above chart are from Refinitiv Institutional Brokers’ Estimate System (I/B/E/S), and 

the Refinitiv I/B/E/S analysts made certain adjustments to Austal’s reported EBIT numbers in 

order to make these figures comparable to the analyst consensus figures. 

91. While Austal’s reported EBIT was approximately $240,000 less than the EBIT 

analyst consensus for the half-year ended December 31, 2014 (referred to as half-year 2015 in 

the chart above), this amount is marginal and analysts and the investing public understood that 

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Austal had met expectations for EBIT for that period. Austal announced these half-year 2015 

results on February 25, 2015, and the closing price of Austal’s Ordinary Shares stayed consistent 

around AUD 1.585 to 1.59 per share. 

92. As discussed below, because AUSA was ultimately forced to include some of the 

cost growth for the half-year ended December 31, 2015 (referred to as half-year 2016 in the chart 

above), Austal’s reported EBIT was lower than the analyst consensus EBIT for that period. 

Using the Navy EACs for that period, however, would have generated a far larger miss and an 

EBIT loss. 

93. Overall, by meeting or exceeding analysts’ EBIT consensus estimates, Austal’s 

Ordinary Shares and ADRs increased dramatically in price. From the financial period ended 

December 31, 2013 (reported to the investing public on February 27, 2014) through the financial 

period ended June 30, 2015 (reported to the investing public on August 26, 2015), Austal’s 

Ordinary Shares increased in value – going from approximately AUD 0.88 per share during late 

February 2014 to approximately AUD 2.40 per share by late November 2015.  

94. In addition, Austal’s Ordinary Shares price and volume sometimes increased 

substantially after it prematurely recognized revenue and met or beat analyst consensus estimates 

for EBIT. For example, on August 26, 2015, on the ASX, Austal reported its fiscal year 2015 

results for the period ending June 30, 2015, and the next day its Ordinary Shares increased from 

a closing price of AUD 1.87 to 1.97 a share and its daily volume went from nearly 800,000 to 

more than 2.5 million.   

K. The Fraud Starts to Come to an End. 

95. As construction of the LCS ships progressed, the false EACs began to catch up to 

AUSA. Indeed, by April 2015, the “challenge” that Perciavalle wanted to apply to LCS 6 was 

higher than the cost of materials estimated from that point forward to complete the ship. If 

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AUSA had applied the entire challenge, the EAC on LCS 6 would be lower than what AUSA 

had already spent on LCS 6. As such, AUSA had to recognize the EAC increase on LCS 6. 

96. By the end of 2015, as it was preparing its half-year 2016 financials, AUSA’s 

Navy EACs had grown far beyond the manipulated LCS EACs (as reflected in the chart above). 

Because certain ships were now completed or nearly completed and AUSA had incurred costs to 

complete the ships, AUSA had to include these building costs in the EACs. In turn, this 

negatively impacted AUSA’s, and thus Austal’s, profit. In fact, on or about September 21, 2015, 

the former AUSA CFO emailed Austal a PowerPoint informing Austal that AUSA would likely 

miss its 2016 EBIT target. 

97. On December 10, 2015, Austal announced that its fiscal year 2016 earnings from 

AUSA would be lower than fiscal year 2015. In response to this announcement, Austal’s 

Ordinary Share on the ASX fell by AUD 0.58, a drop of 25.4%. 

98. Further, by at least May 2016, Austal understood that committed costs on six LCS 

ships (even numbers 6 through 16) were already much higher than the EACs. Thus, because 

these costs were now committed not merely estimated costs, Austal had no choice but to include 

this cost growth in its LCS EACs.  

99. For several weeks in April through June 2016, Austal’s CFO came to AUSA and 

worked with Perciavalle, Runkel, and other AUSA personnel to reset the LCS EACs. This 

process led to Austal’s July 4, 2016 press release announcing that a “US$115 million (A$156 

million) one off write back of work in progress (WIP) is required to recognize an increase in the 

cost of construction.” The write back led to an EBIT loss of $89.6 million for Austal for fiscal 

year 2016. Austal’s Ordinary Shares on the ASX dropped 8.26% following the announcement. 

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L. Defendants Engaged in Deceptive Acts. 

100. As detailed above, Defendants used instrumentalities of interstate commerce in 

connection with the purchase or sale of Austal’s securities. Defendants also engaged in deceptive 

acts to defraud investors by manipulating the LCS EACs, in order to prematurely and 

fraudulently recognize revenue for the periods listed above and allow Austal to meet or exceed 

analyst consensus estimates for EBIT.  

101. As detailed above, Perciavalle used devices, schemes or artifices to defraud in 

connection with the purchase or sale of Austal’s securities and acted knowingly or with severe 

recklessness. Perciavalle committed numerous deceptive acts in furtherance of this scheme. 

Among other things, Perciavalle:  

a. Manipulated EACs in response to pressure from Austal executives to meet 

AUSA’s budgeted revenue and EBIT;  

b. Directed AUSA personnel to falsify the EACs by, among other things: (i) 

applying management challenges to the LCS material EACs calculated by the 

Material Manager; and (ii) using either the bid LCS labor hours EACs or LCS 

labor hours EACs that were lower than the LCS labor hours EACs calculated by 

LCS personnel;  

c. Concealed from the AUSA Board outside managers that Defendants were 

artificially lowering the EACs and that AUSA was applying phony management 

challenges to the LCS material EACs;  

d. Ordered AUSA personnel to hide or delete specific references to management 

challenges in various AUSA documents, including the Executive Review meeting 

PowerPoints;  

e. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud 

when asked about AUSA’s EAC process, and purposely presenting the auditors 

with a JHSV example rather than an LCS example to explain the EAC process 

(because management challenges were not being applied to the JHSV EACs);  

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f. Failed to use or instruct others to use the “latest available, reliable information” to 

calculate the EACs, even though he knew the EACs were objectively false;  

g. Generated false financial information or instructed others to provide false 

financial information that he knew (or was severely reckless in not knowing) 

AUSA would include in its financial statements that it reported to Austal. He also 

knew (or was severely reckless in not knowing) that Austal would report this false 

financial information to the investing public; and  

h.  Provided higher EAC numbers to the Navy than those that were included in 

Austal’s financials, which demonstrated that he knew the higher labor EACs 

submitted to the Navy were the better estimate. 

102. As detailed above, Runkel used devices, schemes or artifices to defraud in 

connection with the purchase or sale of Austal’s securities and acted knowingly or with severe 

recklessness. Runkel committed numerous deceptive acts in furtherance of this scheme. Among 

other things, Runkel:  

a. Calculated the amount Defendants needed to manipulate the LCS EACs in order 

for AUSA to hit its budgeted revenue and EBIT, including analyzing various 

scenarios and the impact of including costs in the EACs on AUSA’s revenue and 

EBIT; 

b. Used disposable sticky notes to direct others to input manipulated numbers in an 

attempt to conceal that Defendants were engaged in fraud;  

c. Executed instructions from Perciavalle and the former AUSA CFO to artificially 

and fraudulently lower the LCS EACs, including to apply phony management 

challenges to the LCS material EACs;  

d. Created a 90% Learning Curve for the LCS labor hours EACs, in an attempt to 

justify the manipulated LCS labor hours EACs;  

e. Prepared false EACs that were used to calculate AUSA’s revenue and EBIT, 

including sending those to the AUSA controller;  

f. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud 

when asked about AUSA’s EAC process, and purposely presenting the auditors 

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with a JHSV example rather than an LCS example to explain the EAC process 

(because management challenges were not being applied to the JHSV EACs); 

g. Failed to use the “latest available, reliable information” or instructed others to not 

use the “latest available, reliable information” to calculate the EACs, even though 

he knew the EACs were objectively false; and   

h. Generated false financial information or instructed others to provide false 

financial information that he knew (or was severely reckless in not knowing) 

AUSA would include in its financial statements that it reported to Austal. He also 

knew (or was severely reckless in not knowing) that Austal would report this false 

financial information to the investing public.  

103. As detailed above, Adams used devices, schemes or artifices to defraud in 

connection with the purchase or sale of Austal’s securities and acted knowingly or with severe 

recklessness. Adams committed numerous deceptive acts in furtherance of this scheme. Among 

other things, Adams:  

a. Used disposable sticky notes to direct others to input manipulated numbers in an 

attempt to conceal that Defendants were engaged in fraud;  

b. Threatened the Material Manager to not discuss the management challenges with 

the Austal CFO if she wanted to keep her job; 

c. Admitted to the Material Manager that Austal’s stockholders did not know 

artificially low EACs were being used to calculate and report revenue;  

d. Hid the EAC manipulation from AUSA’s auditors by not disclosing the fraud 

when asked about AUSA’s EAC process, purposely presenting the auditors with a 

JHSV example rather than an LCS example to explain the EAC process (because 

management challenges were not being applied to the JHSV EACs), and requiring 

the sign-off sheets to falsely document the manipulated EACs; 

e. Falsely signed the LCS labor hours EAC sign-off sheet for the December 31, 

2015 EACs, which documented the phony labor EACs that were used to calculate 

AUSA’s half-year 2016 financials;  

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f. Conveyed instructions from Perciavalle and the former AUSA CFO to other 

AUSA personnel to artificially and fraudulently lower the LCS EACs, including 

to apply management challenges to the LCS material EACs;  

g. Directed AUSA personnel to hide or delete specific references to management 

challenges in various AUSA documents, including the Executive Review meeting 

PowerPoints and the sign-off sheets;  

h. Failed to use or instruct others to use the “latest available, reliable information” to 

calculate the EACs, even though he knew the EACs were objectively false; and  

i. Generated false financial information or instructed others to provide false 

financial information that he knew (or was severely reckless in not knowing) 

AUSA would include in its financial statements that it reported to Austal. He also 

knew (or was severely reckless in not knowing) that Austal would report this false 

financial information to the investing public. 

104. The above referenced actions by Defendants were done with scienter and led to 

Austal reporting material misstated financial statements to the investing public. 

M. Defendants Received Compensation Tied to Financial Measures. 

105. Defendants received compensation during the Relevant Period tied to AUSA and 

Austal financial measures.  

106. First, Defendants received bonuses pursuant to Austal’s Short Term Incentive 

(“STI”) program. Perciavalle received $50,250 in STI for fiscal year 2013 tied solely to AUSA’s 

EBIT, and received $80,000 in STI for fiscal year 2014 tied solely to AUSA’s EBIT margin. 

Adams received $13,791 and Runkel received $13,520 in STI for fiscal year 2013, tied 80% to 

AUSA’s EBIT and 20% to a department goal that directly contributed to AUSA’s EBIT. Adams 

received at least $10,136 and Runkel received $9,779 in STI for fiscal year 2014, tied solely to 

AUSA’s EBIT.  

107. Second, Perciavalle received performance rights under Austal’s Long Term 

Incentive (“LTI”) program, where each performance right converted at zero cost on a one-for-

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one basis to Austal shares, subject to vesting and holding periods. The grant of LTI performance 

rights was at the discretion of Austal’s board and vesting of performance rights was tied to two 

Austal performance measures: (1) total shareholder return, defined as capital growth in the value 

of Austal shares plus dividends paid; and (2) return on capital invested, defined as net operating 

profit after tax exclusive of abnormal items. Perciavalle received LTI performance right grants 

for fiscal years 2014 and 2015, which vested after between two and four years, based on meeting 

the target total shareholder return and return on capital investment measures. Perciavalle 

exercised his vested performance rights and sold these Austal shares.  

N. Defendants Aided and Abetted Violations of Section 10(b). 

1. AUSA and Austal Violated Section 10(b) and Rule 10b-5(a) and (c) of 
the Exchange Act and Defendants Aided and Abetted AUSA’s and 
Austal’s Violations. 

108. AUSA and Austal, through Defendants, engaged in a deceptive scheme to 

artificially reduce the LCS EACs in order to report more revenue to investors for the periods at 

issue. As a result, AUSA and Austal violated Section 10(b) of the Exchange Act and Rules 10b-

5(a) and (c) thereunder. 

109. Based on their titles and job functions, Defendants’ knowledge is imputed to 

AUSA and Austal.  

110. As described above, AUSA and Austal used instrumentalities of interstate 

commerce in connection with the purchase or sale of Austal’s securities. 

111. As detailed above, AUSA and Austal through the actions, knowledge, and 

conduct of Defendants used devices, schemes or artifices to defraud in connection with the 

purchase or sale of Austal’s securities and acted knowingly or with severe recklessness.  

112. As detailed above, Defendants aided and abetted these violations by AUSA and 

Austal by knowingly (or with severe recklessness) providing substantial assistance to those 

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violations. Among other things, Defendants conducted the EAC manipulation that led to 

fraudulent revenue recognition and false financial statements. 

O. Austal Violated Section 10(b) and Rule 10b-5(b) of the Exchange Act and 
Defendants Aided and Abetted Those Violations. 

113. Austal violated Section 10(b) and Rule 10b-5(b) of the Exchange Act by making 

untrue statements of a material fact (or by omitting to state material facts necessary in order to 

make the statements made, in the light of the circumstances under which they were made, not 

misleading) in the above referenced filings, investor presentations, and press releases.  

114. Based on their titles and job functions, Defendants’ knowledge is imputed to 

Austal.  

115. As described above, Austal used instrumentalities of interstate commerce in 

connection with the purchase or sale of Austal’s securities. 

116. As detailed above, Austal, through the actions, knowledge, and conduct of 

Defendants, made misrepresentations of material fact, or omitted material fact, regarding its 

revenues and EBIT contained in the reports, presentations, and press releases listed above, in 

connection with the purchase or sale of Austal’s securities. 

117. Defendants’ artificial reductions to the LCS EACs caused Austal to report 

materially false and misleading information to analysts and the investing public. As set forth 

above, if AUSA had instead used the Navy EACs, Austal would not have met or beat analyst 

consensus estimates for EBIT for its fiscal year 2014, half-year 2015, and fiscal year 2015, and 

would have had to report an EBIT loss for half-year 2016. Further, Austal would have missed the 

consensus estimates for EBIT by wide margins. In addition, during the time period Austal was 

making material misstatements and omissions, its Ordinary Shares’ price was materially affected 

as it rose in value and during the time period that Austal started to disclose its fraud its stock 

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price was materially affected as it decreased in value. Lastly, reasonable investors would have 

wanted to know that Defendants were intentionally manipulating the revenue and EBIT number. 

118. As described above, Austal, through the actions, knowledge, and conduct of 

Defendants, acted knowingly or with severe recklessness. 

119. As detailed above, Defendants aided and abetted these violations by knowingly or 

recklessly providing substantial assistance to those violations. Among other things, Defendants 

conducted the EAC manipulation that led to Austal’s fraudulent revenue recognition and false 

financial statements, investor presentations and press releases. 

V. CLAIMS FOR RELIEF 

First Claim for Relief 
Fraud - Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) Thereunder (15 U.S.C. 

§ 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c)) 
(All Defendants) 

120. The SEC realleges and incorporates by reference in this claim for relief 

paragraphs 1 through 119 as if fully restated herein.  

121. Defendants, directly or indirectly, in connection with the purchase or sale of a 

security, and by the use of means or instrumentalities of interstate commerce, of the mails, or of 

the facilities of a national securities exchange, knowingly and severally recklessly: (a) employed 

devices, schemes, or artifices to defraud; and (c) engaged in acts, practices, or courses of 

business which operated or would operate as a fraud or deceit upon other persons. 

122. By engaging in the conduct described above, Defendants directly or indirectly 

violated, and unless restrained and enjoined will again violate, Section 10(b) of the Exchange 

Act, 15 U.S.C. § 78j(b), and Rule 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c). 

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Second Claim for Relief 
Fraud – Aiding and Abetting AUSA’s Violations of Exchange Act Section 10(b) and Rules 

10b-5(a) and (c) Thereunder (15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) and (c)) 
(Against All Defendants) 

123. The SEC realleges and incorporates by reference in this claim for relief 

paragraphs 1 through 119 as if fully restated herein.  

124. As alleged above, AUSA violated Section 10(b) of the Exchange Act, 15 U.S.C. § 

78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c). 

125. During the Relevant Period, Defendants knowingly or severely recklessly 

provided substantial assistance to AUSA in furtherance of their violations alleged above. 

126. By engaging in the conduct described above, Defendants aided and abetted and, 

unless restrained and enjoined, will continue to aid and abet violations of Section 10(b) of the 

Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5 

(a) and (c). 

Third Claim for Relief 
Fraud – Aiding and Abetting Austal’s Violations of Exchange Act Section 10(b) and Rule 

10b-5 Thereunder (15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b)) 
(Against All Defendants) 

127. The SEC realleges and incorporates by reference in this claim for relief 

paragraphs 1 through 119 as if fully restated herein.  

128. As alleged above, Austal violated Section 10(b) of the Exchange Act, 15 U.S.C. § 

78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. 

129. During the Relevant Period, Defendants knowingly or severely recklessly 

provided substantial assistance to Austal in furtherance of their violations alleged above. 

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130. By engaging in the conduct described above, Defendants aided and abetted and, 

unless restrained and enjoined, will continue to aid and abet Austal’s violations of Section 10(b) 

of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. 

VI. PRAYER FOR RELIEF 

WHEREFORE, the SEC seeks the following relief: 

1. Find that Defendants committed the violations alleged in this Complaint;  

2. Enter an injunction, in a form consistent with Rule 65 of the Federal Rules of 

Civil Procedure and Eleventh Circuit case law, permanently enjoining Defendants and their 

agents, servants, employees, attorneys, and accountants, and those persons in active concert or 

participation with them, who receive actual notice of the Final Judgment by personal service or 

otherwise, and each of them, from engaging in transactions, acts, practices, and courses of 

business described herein, and from engaging in conduct of similar purport and object in 

violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Exchange Act Rule 10b-

5, 17 C.F.R. § 240.10b-5, thereunder; 

3. Order Defendants to disgorge ill-gotten gains received during the period of 

violative conduct and pay prejudgment interest on such ill-gotten gains pursuant to Section 

21(d)(5) and 21(d)(7) of the Exchange Act, 15 U.S.C. §§ 78u(d)(5) and (7); 

4. Order Defendants to pay civil money penalties pursuant to Section 21(d)(3) of the 

Exchange Act, 15 U.S.C. § 78u(d)(3);  

5. Order that Defendants be permanently prohibited from acting as an officer or 

director of any public company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 

78u(d)(2); and 

6. Grant such other and further relief as this Court may deem just and proper. 

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VII. JURY DEMAND 

The SEC demands a trial by jury on all claims so triable.  

Dated: March 31, 2023  Respectfully submitted, 
   
 By: s/ Sharan E. Lieberman 
  Christopher E. Martin 

Sharan E. Lieberman 
U.S. Securities and Exchange Commission 
1961 Stout Street, Suite 1700 
Denver, CO 80294-1961 
Telephone: 303-844-1106 (Martin) 
          303-844-1036 (Lieberman) 
          303-844-1000 (Main) 
 
Email: [email protected] 
 [email protected] 
 
Attorneys for Plaintiff 
U.S. Securities and Exchange Commission 

   
 

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mailto:[email protected]
mailto:[email protected]

	I. INTRODUCTION
	II. DEFENDANTS
	III. JURISDICTION AND VENUE
	IV. Factual Background
	A. Austal and AUSA’s Business
	B. Defendants’ Responsibilities at AUSA
	C. Austal’s Navy Contracts and Revenue Recognition
	D. Austal’s Budgeted Revenue and EBIT
	E. Defendants Knew AUSA Could Not Achieve Austal’s Financial Targets.
	F. Defendants’ Deceptive Conduct Caused Austal to Prematurely Recognize Revenue.
	1. Manipulation of Material EACs
	a. The Material Manager Documented Defendants’ Demands to Falsify the EACs.
	b. Defendants Used Phony “Challenges” to Hide Cost Growth.
	c. Defendants Attended Weekly Meetings to Discuss the Phony “Challenges”

	2. Manipulation of Labor EACs
	a. Defendants Were Aware of the Rising Labor Costs.
	b. Defendants Knew that Labor Costs Were Coming In Higher than the Navy Bid.
	c. Defendants Manipulated Labor EACs.


	G. Defendants Hid the EAC Manipulation From AUSA’s Auditor.
	H. Due to Defendants’ Deceptive Conduct, Austal Made False Filings, Press Releases, and Investor Presentations.
	I. The Manipulated EACs Were Much Lower than the EACs AUSA Submitted to the Navy.
	J. AUSA’s False LCS EACs Allowed Austal to Meet or Beat Analyst Consensus Estimates for EBIT.
	K. The Fraud Starts to Come to an End.
	L. Defendants Engaged in Deceptive Acts.
	M. Defendants Received Compensation Tied to Financial Measures.
	N. Defendants Aided and Abetted Violations of Section 10(b).
	1. AUSA and Austal Violated Section 10(b) and Rule 10b-5(a) and (c) of the Exchange Act and Defendants Aided and Abetted AUSA’s and Austal’s Violations.

	O. Austal Violated Section 10(b) and Rule 10b-5(b) of the Exchange Act and Defendants Aided and Abetted Those Violations.

	V. CLAIMS FOR RELIEF
	First Claim for Relief
	Second Claim for Relief
	Third Claim for Relief

	VI. Prayer for relief
	VII. JURY DEMAND