Three former executives from Mobile, Alabama-based shipbuilder Austal USA LLC have been charged with accounting fraud by the Securities and Exchange Commission.
The commission alleges that former president Craig D. Perciavalle, current director of financial analysis Joseph A. Runkel, and former director of the Littoral Combat Ships program, William O. Adams, ran a fraudulent revenue recognition scam to help Austal meet analysts' expectations.
Specifically, the charges allege that the three men schemed to artificially reduce "estimate at completion" figures by tens of millions of dollars for certain shipbuilding projects that the company had undertaken for the U.S. Navy, even though they knew the company's costs were rising.
The commission also alleges that Austal USA's Australian parent company, Austal Ltd., prematurely recognized revenue to help it meet or beat analysts' earnings estimates.
According to the commission, when the higher costs were eventually disclosed, Austal Ltd. wrote down over $100 million.
"We allege that Austal USA's executives manipulated its financial results, causing harm to U.S. investors in the securities of its parent company, Austal Limited," said Jason Burt, regional director of the SEC's Denver Regional Office, in a statement. "If the defendants had not fraudulently manipulated the cost estimates, Austal Limited would have missed, by wide margins, analyst consensus estimates for EBIT."
A spokesperson for Austal Ltd. said that the company was aware of the charges.
"These actions stem from investigations that have been ongoing since at least 2019 and relate to actions allegedly taken between 2013 and 2016," the spokesperson said in an emailed statement. "The company and Austal USA have been cooperating with the Department of Justice and SEC in their investigations and will continue to do so until these matters are fully resolved. Austal USA has invested significant time and resources to strengthen its compliance program since the investigations began. While significant changes have been implemented, a review of its current compliance programs and practices is continuing to ensure that it maintains a significantly enhanced compliance program and conducts business with the highest level of integrity."
The SEC complaint alleges that Perciavalle, Runkel, and Adams violated the antifraud provisions of the Securities Exchange Act of 1934 and seeks disgorgement plus prejudgment interest, civil money penalties, and officer and director bars.
Perciavalle, Adams, and Runkel are each charged with one count of conspiracy to commit wire fraud and wire fraud affecting a financial institution, five counts of wire fraud, and two counts of wire fraud affecting a financial institution. If convicted, they each face a maximum penalty of 30 years in prison for the conspiracy count and each count of wire fraud affecting a financial institution, and 20 years in prison for each count of wire fraud.
