sec-litreleases litigation_release 65 KB 3,247 chars

SEC v. Jerry S. Chang; and Matthew M Chiang, No. LR-18914, Northern District of California — Press Release

raw: Jerry S. Chang

Jerry S. Chang, No. LR-18914

Caption
SEC v. Jerry S. Chang, et al.
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summary

Former Clarent CEO Jerry S. Chang orchestrated a fraud by inflating revenue through sham sales with secret buyback guarantees and diverting $46 million in company funds to entities tied to fellow executive Matthew Chiang, leading to Clarent’s bankruptcy and SEC charges for securities fraud, false reporting, and concealment of liabilities.

paragraph

The SEC charged former Clarent CEO Jerry S. Chang with fraudulently inflating revenue by 33% in Q4 2000 and 23% and 39% in Q1 and Q2 2001 by inducing a Taiwanese firm to purchase $15 million in products with a secret side agreement that a company linked to Matthew Chiang’s family would repurchase unsold goods, rendering revenue recognition improper. Chang also illegally transferred $35 million from Clarent’s Asia Pacific office and arranged an additional $11 million loan guarantee for the same entity, both concealed from internal controls and financial personnel. The SEC alleges violations of Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act, seeking disgorgement, penalties, injunctions, and bars from serving as corporate officers, while also filing a separate action against former Asia Pacific President Matthew M. Chiang for aiding and abetting the fraud.

narrative

Former Clarent Corporation CEO Jerry S. Chang orchestrated a sophisticated financial fraud that artificially inflated the company’s revenue by 33% in the fourth quarter of 2000 and by 23% and 39% in the first two quarters of 2001 through sham sales transactions. In December 2000, Chang induced a Taiwanese technology firm to purchase $15 million in Clarent hardware and software by secretly guaranteeing that a company affiliated with Matthew M. Chiang—Clarent’s former Asia Pacific President—and his family would repurchase any unsold goods, a condition never disclosed to Clarent’s finance team or auditors. In June 2001, Chang directed the unauthorized transfer of $35 million from Clarent’s Asia Pacific office to the same affiliated entity and arranged an additional $11 million loan guarantee, both of which were concealed from company management and financial records, thereby overstating cash balances and hiding liabilities. These actions violated multiple provisions of the Securities Exchange Act, including Sections 10(b), 13(a), 13(b)(2), and 13(b)(5), as well as Rules 10b-5, 13b2-1, and 13b2-2. The SEC filed charges against Chang for antifraud, reporting, books and records, and internal control violations, seeking disgorgement, monetary penalties, injunctions, and a ban from serving as a corporate officer or director. In a related action, the SEC also charged Matthew M. Chiang with aiding and abetting these violations, alleging his complicity in the side agreements and fund transfers. Clarent, which had been a provider of Internet telephone products, ultimately filed for bankruptcy as a direct result of the fraud, leaving investors and creditors with massive losses. The case underscores the severity of executive misconduct involving concealed side deals and misappropriation of corporate funds to benefit insiders.

Enriched metadata

Scheme
financial-fraud (100%)
Court
Northern District of California
Entity
Jerry S. Chang
Classified financial-fraud(confidence 100%). EDGAR detection: forms 10-K/10-Q/8-K/NT 10-K· recall 67% / precision 23%. detection rule →
Statutes
Sections 10(b), 13(b)(5) of the Securities Exchange ActSections 10(b), 13(b)(5) of the Securities Exchange ActSections 10(b), 13(b)(5) of the Securities Exchange Act
Parties
Securities and Exchange CommissionJerry S. ChangMatthew M Chiang
Keywords
clarentchangclarent executiveclarent'sjerry changrules thereundersecuritiesexecutivemillionexchangecommissionrevenuesecurities exchangeagainst formerexecutive family

Exhibits & Attached Documents (1)

Extracted insights

Dollar amounts 3
  • $35.00M $35 million $10M–$100M
  • $15.00M $15 million $10M–$100M
  • $11.00M $11 million $10M–$100M
Entities 4
  • person his misconduct
  • agency Securities and Exchange Commission
  • organization Securities and Exchange Commission
  • organization The Commission
Triples 5
  • Securities and Exchange Commission announced it has filed financial accounting fraud charges against former CEO of Clarent Corporation
  • Securities and Exchange Commission filed financial accounting fraud charges against former CEO of Clarent Corporation
  • His misconduct led Clarent to overstate revenue by 33% for Q4 2000
  • His misconduct led Clarent to overstate revenue by 23% and 39% for Q1 and Q2 2001
  • The Commission sued former CEO Jerry S. Chang for allegedly inflating Clarent's revenue through fraudulent sales
PDF (from attached: complaint)
SEC v. JERRY SHAW-YAU CHANG · Source
Text layers
Extracted body text (3,247c) 
The Securities and Exchange Commission announced that it has filed financial accounting fraud charges against the former Chief Executive Officer of a 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 former CEO Jerry S. Chang, 45, of Los Altos Hills, California, for allegedly inflating Clarent's revenue through fraudulent sales transactions and siphoning cash to a company in which the other Clarent executive and his family held influential positions. The complaint alleges that, in December 2000, Chang induced a Taiwanese technology firm to place separate orders totaling $15 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 the family of the other Clarent executive 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, Chang concealed the secret deal terms from Clarent's finance personnel, causing the company to report phony revenue to the public. The complaint further alleges that, in June 2001, Chang directed the unauthorized release of $35 million from Clarent's Asia Pacific office to the entity related to the other Clarent executive and his family. Chang also arranged an additional $11 million loan guarantee for this entity. Neither the $35 million cash disbursement nor the $11 million loan guarantee was disclosed to Clarent's financial personnel or management. These improper payments caused Clarent to overstate its cash and to fail to disclose a liability. The Commission's complaint, filed in the U.S. District Court for the Northern District of California, charges Chang 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 Chang 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) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. In a related matter, the Commission filed a separate action against the former President of Clarent's Asia Pacific office, Matthew M Chiang, 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 Chiang aided and abetted Clarent's violations of certain of these provisions. SEC Complaint in this matter
OCR text (3,247c · plain-text · 99% conf) 
The Securities and Exchange Commission announced that it has filed financial accounting fraud charges against the former Chief Executive Officer of a 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 former CEO Jerry S. Chang, 45, of Los Altos Hills, California, for allegedly inflating Clarent's revenue through fraudulent sales transactions and siphoning cash to a company in which the other Clarent executive and his family held influential positions. The complaint alleges that, in December 2000, Chang induced a Taiwanese technology firm to place separate orders totaling $15 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 the family of the other Clarent executive 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, Chang concealed the secret deal terms from Clarent's finance personnel, causing the company to report phony revenue to the public. The complaint further alleges that, in June 2001, Chang directed the unauthorized release of $35 million from Clarent's Asia Pacific office to the entity related to the other Clarent executive and his family. Chang also arranged an additional $11 million loan guarantee for this entity. Neither the $35 million cash disbursement nor the $11 million loan guarantee was disclosed to Clarent's financial personnel or management. These improper payments caused Clarent to overstate its cash and to fail to disclose a liability. The Commission's complaint, filed in the U.S. District Court for the Northern District of California, charges Chang 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 Chang 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) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. In a related matter, the Commission filed a separate action against the former President of Clarent's Asia Pacific office, Matthew M Chiang, 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 Chiang aided and abetted Clarent's violations of certain of these provisions. SEC Complaint in this matter

Related documents (1)