SEC v. Matthew M. Chiang; and Jerry S. Chang, No. LR-18915, Northern District of California — Press Release
raw: Matthew M. Chiang
Matthew M. Chiang, No. LR-18915
Matthew M. Chiang, former President of Clarent’s Asia Pacific office, orchestrated a financial fraud by inflating revenue through fake sales and secret buyback agreements, siphoning $35 million to a family-controlled entity, leading to Clarent’s bankruptcy and SEC charges for securities law violations.
The SEC charged Matthew M. Chiang with inflating Clarent’s revenue by 33% in Q4 2000 and by 23% and 39% in Q1 and Q2 2001 through fraudulent sales involving undisclosed side agreements, including $7 million in fake orders and $31 million in sales with hidden return rights. He also directed the unauthorized transfer of $35 million from Clarent’s Asia Pacific office to a company controlled by his family, concealing both the revenue manipulation and cash diversion from finance personnel and auditors. The SEC further charged former CEO Jerry S. Chang with aiding and abetting these violations, seeking injunctions, disgorgement, penalties, and officer/director bars under Sections 10(b), 13(b)(5), and related rules of the Securities Exchange Act.
Matthew M. Chiang, former President of Clarent Corporation’s Asia Pacific office, orchestrated a multi-faceted accounting fraud that artificially inflated revenue by 33% in Q4 2000 and by 23% and 39% in Q1 and Q2 2001. He induced Taiwanese customers to place $7 million in fake orders by secretly guaranteeing buybacks through a family-controlled entity, and concealed return rights on an additional $31 million in sales, rendering all such revenue recognition improper under accounting rules. In June 2001, Chiang authorized the unauthorized transfer of $35 million from Clarent’s Asia Pacific cash reserves to the same family-linked entity, without disclosure to management or auditors, thereby overstating the company’s cash position. He systematically concealed these schemes from Clarent’s finance team, falsifying books and records to mislead investors and regulators. The SEC also charged former CEO Jerry S. Chang with aiding and abetting these violations, alleging his failure to oversee internal controls and his complicity in the fraudulent reporting. Clarent, already financially strained, filed for bankruptcy in 2001 as a direct result of the fraud. The SEC’s complaint, filed in the Northern District of California, seeks injunctions, disgorgement of ill-gotten gains, monetary penalties, and permanent bars against Chiang and Chang from serving as officers or directors of public companies, citing violations of Sections 10(b), 13(a), 13(b)(2), 13(b)(5), and related rules under the Securities Exchange Act of 1934.
Exhibits & Attached Documents (1)
Extracted insights
- $35.00M $35 million $10M–$100M
- $31.00M $31 million $10M–$100M
- $7.00M $7 million $1M–$10M
- agency Securities and Exchange Commission
- organization Securities and Exchange Commission
- Matthew M. Chiang inflated revenue Clarent Corporation's revenue by 33% for Q4 2000 and 23% and 39% for Q1 and Q2 2001
- Securities and Exchange Commission filed charges against Matthew M. Chiang for financial accounting fraud
- Matthew M. Chiang and another Clarent executive led Clarent to overstate revenue by 33% for Q4 2000 and 23% and 39% for Q1 and Q2 2001
The Securities and Exchange Commission announced that it has filed financial accounting fraud charges against the former President of the Asia Pacific office of Redwood City, California-based Clarent Corporation. His misconduct, and that of another Clarent executive, led Clarent, a now-bankrupt provider of Internet telephone products, to overstate its revenue by 33% for the fourth quarter of 2000, and by 23% and 39% respectively for the first two quarters of 2001. The Commission sued Clarent's former President of Asia Pacific operations Matthew M. Chiang, 35, of Taipei, Taiwan, for allegedly inflating Clarent's revenue through fraudulent sales transactions and siphoning cash to a company in which Chiang and his family held influential positions. The complaint alleges that, in December 2000, Chiang induced a Taiwanese technology firm to place orders of approximately $7 million for Clarent hardware and software by promising that, if the firm could not resell the products, Clarent would arrange for a company associated with Chiang's family to buy the goods (as in fact ultimately occurred). These side arrangements made it improper for Clarent to recognize revenue for the sales, but, according to the complaint, Chiang concealed the secret deal terms from Clarent's finance personnel, causing the company to report phony revenue to the public. The Commission further alleges that, in June 2001, Chiang directed the unauthorized release of $35 million from Clarent's Asia Pacific office to the Chiang-related entity. The $35 million cash disbursement was not disclosed to Clarent's financial personnel or management. This improper payment caused Clarent to overstate its cash. The complaint additionally alleges that, between March 2001 and June 2001, he provided customers in Asia with undisclosed rights to cancel orders or return product to Clarent on another $31 million in purported sales, making it improper for Clarent to include revenue from the orders in its publicly reported financial statements. The Commission's complaint, filed in the U.S. District Court for the Northern District of California, charges Chiang with violating the antifraud, corporate reporting, books and records and internal accounting control provisions of the federal securities laws, and seeks injunctions, disgorgement, monetary penalties, and orders barring them from serving as officers or directors of public companies. In particular, the Commission asserts claims against Chiang for violations of Sections 10(b), 13(b)(5) of the Securities Exchange Act of 1934 ("Securities Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder as well as for aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1 and 13a-13 thereunder. In a related matter, the Commission filed a separate action against former Chief Executive Officer, Jerry S. Chang, charging him with violating, or aiding and abetting violations of, the antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. (Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.) In addition, the complaint alleges that Chang aided and abetted Clarent's violations of certain of these provisions. SEC Complaint in this matterThe Securities and Exchange Commission announced that it has filed financial accounting fraud charges against the former President of the Asia Pacific office of Redwood City, California-based Clarent Corporation. His misconduct, and that of another Clarent executive, led Clarent, a now-bankrupt provider of Internet telephone products, to overstate its revenue by 33% for the fourth quarter of 2000, and by 23% and 39% respectively for the first two quarters of 2001. The Commission sued Clarent's former President of Asia Pacific operations Matthew M. Chiang, 35, of Taipei, Taiwan, for allegedly inflating Clarent's revenue through fraudulent sales transactions and siphoning cash to a company in which Chiang and his family held influential positions. The complaint alleges that, in December 2000, Chiang induced a Taiwanese technology firm to place orders of approximately $7 million for Clarent hardware and software by promising that, if the firm could not resell the products, Clarent would arrange for a company associated with Chiang's family to buy the goods (as in fact ultimately occurred). These side arrangements made it improper for Clarent to recognize revenue for the sales, but, according to the complaint, Chiang concealed the secret deal terms from Clarent's finance personnel, causing the company to report phony revenue to the public. The Commission further alleges that, in June 2001, Chiang directed the unauthorized release of $35 million from Clarent's Asia Pacific office to the Chiang-related entity. The $35 million cash disbursement was not disclosed to Clarent's financial personnel or management. This improper payment caused Clarent to overstate its cash. The complaint additionally alleges that, between March 2001 and June 2001, he provided customers in Asia with undisclosed rights to cancel orders or return product to Clarent on another $31 million in purported sales, making it improper for Clarent to include revenue from the orders in its publicly reported financial statements. The Commission's complaint, filed in the U.S. District Court for the Northern District of California, charges Chiang with violating the antifraud, corporate reporting, books and records and internal accounting control provisions of the federal securities laws, and seeks injunctions, disgorgement, monetary penalties, and orders barring them from serving as officers or directors of public companies. In particular, the Commission asserts claims against Chiang for violations of Sections 10(b), 13(b)(5) of the Securities Exchange Act of 1934 ("Securities Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder as well as for aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1 and 13a-13 thereunder. In a related matter, the Commission filed a separate action against former Chief Executive Officer, Jerry S. Chang, charging him with violating, or aiding and abetting violations of, the antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. (Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.) In addition, the complaint alleges that Chang aided and abetted Clarent's violations of certain of these provisions. SEC Complaint in this matter