Federal authorities charged a former Ferro Corp. polymer additives employee with securities fraud for allegedly overstating earnings and understating debt in filings with the Securities and Exchange Commission.
Brian Haylor, 37, allegedly altered entries between March 2003 and June 2004 so that Cleveland-based Ferro's results would appear to have come close to its own previous forecasts, according to an Aug. 22 news release from Greg White, U.S. attorney for the northern district of Ohio.
The questionable entries made by Haylor totaled about $1.2 million, according to Ferro investor relations director Charles Mazur. Haylor, who was based in Ferro's main office in Cleveland, worked as controller of Ferro's polymer additives division from November 2000 until June 2004, when he resigned.
If convicted, Haylor faces up to 20 years in jail and a fine of $5 million, although assistant U.S. attorney Justin Roberts said by phone that, in most such cases, sentencing is less than the maximum. Roberts added that the investigation of Ferro is ongoing, but he declined to speculate on the possibility of future arrests.
Ferro, one of North America's largest polypropylene compounders, first reported the shortcoming in July 2004, when it delayed its second-quarter financial statement and said profit for the quarter would be almost 70 percent lower than expected.
In January, Ferro restated financial results for 2003 and the first quarter of 2004. The restatements lowered profit by $9.9 million and sales by $3.2 million for that period.
In April, company officials said all employees potentially responsible for irregular accounting entries had resigned or been terminated. In an independent investigation, law firm Jones Day and accounting firm Ernst & Young ``did not find evidence of a pervasive pattern of managing earnings that constitutes illegal acts,'' Ferro officials said in a news release.
``The fact that [the questionable entries] were self-discovered and self-reported was key,'' Ferro's Mazur said in an Aug. 26 phone interview. ``When we saw things that didn't make sense financially, we reported it to our own audit committee, which then began the investigation.''
Mazur declined to say whether Ferro's internal investigation is complete.
Polymer additives accounted for sales of about $230 million in 2003, representing about 14 percent of Ferro's sales total of $1.6 billion. Ferro's per-share stock price was around $24 when the first disclosures were made in July 2004, but has tumbled since then and was around $18.50 in early trading Aug. 26.