Three executives with US naval shipbuilder Austal USA are facing federal fraud charges for allegedly lowering cost estimates by hundreds of millions of dollars so that its Australian parent Austal could meet analyst estimates.
Former president Craig Perciavalle, financial analysis director Joseph Runkel and Littoral Combat Ships programme director William Adams artificially lowered costs for US Navy shipbuilding projects by $438m, the Securities and Exchange Commission (SEC) has alleged.
The executives are accused of carrying out the “fraudulent revenue recognition scheme” from January 2013 through July 2016 in order to falsely raise Ebitda by $79m and meet analyst consensus during this period.
Calls to Austal USA, which builds ferries and military vessels, were not immediately returned.
As a result of the false financial filings, the price of Austal’s Australia-listed stock rose from AUD 0.88 ($0.60) in late February 2014 to AUD 2.40 ($1.63) in late November 2015, the SEC alleged.
“The complaint alleges that Perciavalle, Runkel, and Adams knew that Austal USA’s shipbuilding costs were rising and higher than planned, but they directed others to arbitrarily lower the cost estimates to meet Austal USA’s revenue budget and revenue projections,” the SEC said in a statement.
The complaint further alleged that the parent company prematurely recognised revenue to meet or exceed analyst consensus for earnings before interest and tax (Ebit), a key financial metric for the company.
“We allege that Austal USA’s executives manipulated its financial results, causing harm to US investors in the securities of its parent company,” said Jason Burt, director of the SEC’s Denver regional office.
“As the complaint articulates, if the defendants had not fraudulently manipulated the cost estimates, Austal Limited would have missed, by wide margins, analyst consensus estimates for Ebit.”
The SEC, which alleged that Perciavalle, Runkel and Adams violated SEC antifraud provisions, demands that Austal recompensate investors for any losses incurred as a result of the fraudulent activity.
It also requests that Austal pay civil money penalties and bar any officers and directors who were involved in the fraudulent scheme from the company.
