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In re Valley Systems, Inc.
Securities and Exchange Commission
Accounting & Auditing Enforcement Release No. 707 [1995–1998 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 74,222 (Sept. 14, 1995)
Valley Systems, Inc. (Valley) (defendant) provided industrial-cleaning services. In fiscal year (FY) 1992, Valley’s first year after an initial public offering, the company’s finances started to decline. Valley’s former chief financial officer directed capitalization of certain expenses on the ground that the expenses were incurred for equipment. In actuality, no such equipment existed. This capitalization was reported on Valley’s FY1992 quarterly reports. During Valley’s year-end audit, the auditors discovered the fraudulent capitalization. Upon this discovery, Valley restated its quarterly reports for the year. The Securities and Exchange Commission (SEC) (plaintiff) instituted a proceeding against Valley, alleging that the company’s original financial reports violated SEC regulations.
Rule of Law
Holding and Reasoning
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