Securities and Exchange Commission Fines Creve Coeur Man $20K
But lest you think this means the notoriously ineffective SEC is cracking down on the funny money trades that triggered our recent financial crisis, ha! This appears to have been a strange case from the get-go -- not something we can get all excited about or point to as in any way endemic of something bigger. (Sorry.)
In September 2005, the SEC alleges, Zoltek hired a St. Louis financial consultant to raise investment for the company. The company agreed to pay the consultant -- who is not named in the complaint -- $250,000 if any of his hedge fund clients kicked in investments.
Two years later, Zoltek did in fact sign on one of the consultant's clients as an investor. But Zoltek's CEO balked at paying the consultant. (The complaint doesn't explain why.)
So, strangely, the feds allege that Schott took matters into his own hands and arranged to wire money secretly to Zoltek's Hungarian subsidy -- which then paid the consultant. But a host of people began to question the transfers, including the company's Hungarian controller, and (eventually) the CEO who'd rebuffed the consultant's request for payment.
Rather than 'fess up, the SEC alleges, Schott then "created a false document which showed the payments were for another purpose."
Nice. And, naturally, ineffective. (Why do none of these supposedly smart financial guys ever learn that forged documents always get found out?)
"The CEO quickly determined that the document was false and that the payments were for the consultant," the complaint alleges. "He then asked Schott to resign and repay Zoltek the $250,000 that Schott had transferred to the consultant." Schott, per the SEC, actually wrote the CEO a personal check for the money that very day.
Where Schott ended up in further trouble is apparently a matter of record keeping. "Schott knew that he had circumvented Zoltek's internal controls and caused Zoltek to improperly record the payments to the consultant in its books and records," the SEC writes. "Despite this knowledge, Schott did not disclose the unauthorized payments in his certifications to the public or to Zoltek's auditors."
Their settlement with Schott, filed in court Friday along with the complaint, says that Schott and his agents are "permanently restrained and enjoined" from making false statements or omitting key information in financial statements. It also orders a $20,000 civil penalty.
Considering the guy already wrote a personal check for $250,000 over this imbroglio, we have a feeling $20,000 will be relatively painless.