Aura Systems Settles SEC Fraud Case

Aura Systems Inc. set up “sham” transactions and engaged in other “window dressing” deals to illegally bolster its financial results in its fiscal years 1993 and 1994, the Securities and Exchange Commission alleged Wednesday.

The civil charges came in a consent decree in which El Segundo-based Aura, which provides electromagnetic technology for industry, neither admitted nor denied the allegations but agreed not to commit such violations in the future.

Aura President Zvi (Harry) Kurtzman, 49; its former chief financial officer Francis T. Phalen, 56; and Joseph Bevacqua, 52, an accountant who was involved with Aura on one of the deals in question, also settled the case on similar terms, the SEC said.

The agency did not demand cash penalties for the alleged violations of the financial-reporting and fraud provisions of U.S. securities laws.

Nor was Aura required to further restate its past financial results; the company previously had reversed some of the revenue in question after the SEC began investigating, the agency said.

Aura said it was “pleased to be able to finally put the matter behind,” and that the SEC’s complaint was consistent with statements the firm made in June, when it announced a tentative agreement with the SEC on the settlement.

Aura also noted Wednesday that the SEC did not claim that Kurtzman “or anyone else personally benefited in any way” from the alleged violations.

According to the SEC’s complaint, Aura once depended on military sales but decided in the early 1990s to seek more commercial business. Aura now uses its technology to enhance the performance of automotive power systems, audio speakers and television monitors. But in fiscal 1993 and ‘94, Aura’s financial statements “described, in false or misleading terms, its success in developing new commercial markets” for its technology, the SEC alleged.

Aura’s gains in nonmilitary sales “resulted largely from two transactions that did not involve Aura’s products or technologies,” the agency charged.

In one, Aura bought and then resold some computer monitors, a deal that produced about $2.4 million in sales, or 67% of the company’s total sales for its fiscal fourth quarter ended Feb. 28, 1993, the SEC said.

Also, “Aura entered into a sham agreement with a small drywall contractor” that produced revenue of $1.5 million in Aura’s fiscal 1994 third quarter, or more than a third of its total revenue for that period, the SEC said. False documents were prepared “to create the appearance that the transaction was a valid sale, when in fact it was not,” the SEC charged. “In fact, the contractor was simply returning funds previously routed to it by Aura through a third party.”