The SEC announced today that it filed settled securities fraud and related charges against the former controller and former operations manager of Suprema Specialties, Inc., a now-defunct cheese manufacturer. Notably, continuing a trend discussed here in several previous posts, the SEC also sued several of Suprema's former customers and vendors for their alleged roles in facilitating the fraud.

The SEC alleged that the core of the alleged fraud was a "round-tripping" scheme in which funds were circulated from Suprema through companies purporting to be customers and vendors of Suprema in what were actually fictitious transactions. The complaint alleges that these customers and vendors each signed false audit confirms that were provided to Suprema's independent auditors, and each received kick-backs for their participation in the scheme. According to the complaint, the round-tripping transactions collectively resulted in overstatements of Suprema's reported revenues by approximately 5.75%, 7.41%, 14.25%, 19.51%, and 19.48% in fiscal years 1998, 1999, 2000, 2001, and the first quarter of 2002, respectively.

Specifically emphasizing its cases against the alleged facilitators, Paul R. Berger, Associate Director of the SEC's Division of Enforcement stated in the SEC's press release that "[i]n our action today, we are suing not only Suprema's own executives, but also those who did business with Suprema. This case reinforces the SEC's determination to hold customers and vendors of a public company accountable when they knowingly participate in schemes that defraud the company's shareholders."