Former Endocare Executives Charged
U.S. securities regulators charged former Endocare Inc. Chief Executive Paul W. Mikus and former Chief Financial Officer John V. Cracchiolo with fraud, saying that the two “significantly overstated” income.
The alleged fraud occurred during 2001 and 2002, with the company overstating revenue as much as 33% in one quarter, the Securities and Exchange Commission said in a statement. Irvine-based Endocare makes medical devices to treat cancers and prostate ailments.
“Endocare’s egregious and widespread fraud pervaded the executive suite,” said Randall R. Lee, director of the SEC’s Pacific regional offices in Los Angeles, in the statement.
The company, which is trying to gain financing to stay afloat, agreed last month to pay $750,000 to settle an SEC investigation of the accounting issues. Three current and former employees also settled related charges. The current CEO, Craig T. Davenport, was hired in December 2003.
“This is just a continuation of what was settled with the company, and the SEC has taken the next step of filing charges with these individuals who have long been separated from the company,” Endocare spokesman Matt Clawson said. The company itself isn’t being investigated by the SEC or Justice Department, he added.
Telephone numbers for Mikus, 40, of Irvine, and Cracchiolo, 50, of Gardnerville, Nev., couldn’t immediately be found.
The complaint, filed Wednesday in U.S. District Court in Santa Ana, alleges that fraudulent accounting caused earnings to be overstated at least 16% in all of 2001, 17% in the first quarter of 2002 and 33% in the second quarter of 2002.
The company has restated those earnings and doesn’t plan to make any further corrections as a result of the investigation, Clawson said.
Endocare disclosed Tuesday that it had received an SEC subpoena for information on stock-option grants involving former officers and directors. The company also said that it would probably need to raise additional capital no later than March 31, 2007, to keep operating.
