## Facts

- The SEC brought a civil enforcement action against Albert J. Dunlap (Sunbeam’s former CEO and chairman) and other former Sunbeam officers, alleging a scheme to misrepresent Sunbeam’s financial results during a purported corporate “turnaround.”
- The SEC alleged that after Dunlap’s arrival in 1996, senior management set aggressive earnings targets and used improper accounting techniques and undisclosed non-recurring transactions to meet promised results.
- Alleged misconduct included: creating and later reversing improper “cookie-jar” reserves; recognizing revenue that did not satisfy accounting requirements (including alleged improper “bill-and-hold” transactions); and “channel stuffing” through discounts and inducements that pulled sales from later periods into 1997.
- The SEC alleged that Sunbeam’s public filings and press releases for year-end 1996, quarters and year-end 1997, and first-quarter 1998 were materially false and misleading, and that at least $60 million of reported 1997 pre-tax earnings was attributable to accounting fraud.
- The SEC alleged that the misstatements inflated Sunbeam’s stock price (peaking around March 1998), and that the subsequent collapse of the “turnaround” narrative contributed to severe investor losses and Sunbeam’s bankruptcy.

## Issues

1. Whether the defendants’ alleged conduct violated Securities Act § 17(a) and Exchange Act § 10(b) and Rule 10b-5 through materially false or misleading statements or deceptive practices.
2. Whether defendants caused, or aided and abetted, violations of Exchange Act reporting, books-and-records, and internal-controls requirements (including Exchange Act §§ 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) and related rules).
3. What injunctive and remedial relief was appropriate, including permanent injunctions, officer-and-director bars, and civil penalties.

## Decision

- The court entered final judgments by consent in 2002 against Dunlap and Sunbeam’s former CFO, Russell A. Kersh.
- Without admitting or denying the allegations, Dunlap and Kersh consented to permanent injunctions prohibiting future violations of antifraud, reporting, books-and-records, and internal-controls provisions of the federal securities laws.
- The court permanently barred Dunlap and Kersh from serving as officers or directors of any public company.
- The court ordered civil penalties of $500,000 against Dunlap and $200,000 against Kersh.

## Legal Principles

- Materially false or misleading financial reporting, including improper revenue recognition and reserve practices, can form the basis for antifraud liability under Securities Act § 17(a) and Exchange Act § 10(b) and Rule 10b-5.
- Conduct that results in false periodic reports, inaccurate books and records, or deficient internal accounting controls can violate Exchange Act reporting, books-and-records, and internal-controls provisions and may support SEC injunctive relief.
- In SEC enforcement actions, courts may impose permanent injunctions, officer-and-director bars, and civil penalties when the alleged misconduct involves serious threats to the integrity of public-company disclosure and financial reporting.
- Consent judgments in SEC actions may be entered without admissions of liability, while still imposing forward-looking restraints and monetary penalties.

## Conclusion

The court resolved the SEC’s Sunbeam financial-reporting case against Dunlap and Kersh through consent judgments that imposed permanent antifraud-and-reporting injunctions, lifetime public-company officer-and-director bars, and significant civil penalties, reflecting the SEC’s allegations of large-scale accounting and disclosure misconduct.


SEC v. Dunlap, No. 01-8437-CIV (S.D. Fla. 2002)