SEC files claims against former CFO of Bainbridge skin care marketing and retail company

Published 12:29 pm Tuesday, August 10, 2010

The Securities and Exchange Commission has charged a former chief financial officer of Bainbridge-headquartered International Commercial Television Inc., a marketer and seller of health and beauty products, with distorting its revenue to make losses appear as profit.

Claims filed Monday in U.S. District Court in Tacoma alleged that Karl Redekopp, who is no longer with the company, overstated revenue by $3.7 million and net income by $3.9 million in 2007 and 2008.

As a result, the company’s balance sheet during that period indicated profits, when in reality ICTV faced significant losses. These practices violated Generally Accepted Accounting Principles (GAAP), which say revenue must be realized before it can be reported.

“Redekopp committed fraud to artificially inflate ICTV’s revenue, and the failures of ICTV’s auditors allowed the fraud to go unchecked,” said Jason Habermeyer, an SEC investigative attorney. “These financial gatekeepers disregarded their critical responsibilities to uphold market integrity.”

The SEC is seeking an unspecified financial penalty against Redekopp and an order barring him from serving as an officer of any public company. The regulatory body is continuing forward on charges of fraud against Redekopp, who resigned from the company in August 2008, according to court documents.

The SEC and ICTV agreed to an injunction to ensure accurate future reporting of the books, an act that indicates a similar violation will lead to greater consequences, SEC officials said Tuesday. ICTV was not charged with fraud, nor is any financial penalty sought against it.

The SEC also took action against the company’s Miami-based auditors for failing to identify accounting issues and validating the company’s financial statements in 2007 and 2008.

ICTV Chief Executive Officer Kelvin Claney said Redekopp left the company in 2008 because he didn’t want to relocate from Bainbridge when its administrative offices moved to Pennsylvania. The majority of ICTV’s offices are in other states, but a Madison Avenue office is still home to Claney.

After Redekopp resigned from the company, his successors noticed discrepancies in the financial statements. On Oct. 31, 2008, ICTV issued a report correcting the errors.

“We are pleased that the SEC did not feel it was appropriate to fine or bring any fraud charges against the company or any of its present officers or directors,” Claney said. “While we are embarrassed and apologize over the need to restate our prior financial statements, we now have absolute confidence in the accuracy of our financial reporting. We are glad to have this process behind us, and we look forward to resuming the growth of the company.”

The SEC alleged that Redekopp falsified the company’s earnings by reporting units of its most popular product, the Derma Wand, sold when they either hadn’t been, or customers had no obligation to pay for them. SEC officials said Redekopp claimed revenue from units of the Derma Wand ordered by the Home Shopping Network, but not yet sold to customers.

“Throughout 2007, to the second quarter of 2008, ICTV failed to ensure that, by the end of each quarter, HSN had sold through the units for which revenue was recognized during that period,” according to claims against Redekopp. “As a result, ICTV reported revenue to investors for sales which had not been completed that quarter and for which it had no assurance of being paid.”

In other cases, he allegedly reported revenue from products that featured free trial periods before the trial time ended.