The Securities and Exchange Commission today announced that Austal USA, LLC, a Mobile, Alabama-based shipbuilder, and its Australia-based parent company, Austal Limited, have agreed to settle the SEC’s charges that the companies conducted a fraudulent revenue recognition scheme. As part of the settlement with the SEC, Austal USA will pay a $24 million civil penalty.
According to the SEC’s complaint, from at least January 2013 through July 2016, the Austal companies engaged in a scheme to artificially reduce by tens of millions of dollars the estimated cost to complete certain shipbuilding projects for the U.S. Navy. The complaint alleges that Austal USA knew that its shipbuilding costs were rising and higher than planned, but arbitrarily lowered the cost estimates to meet Austal USA’s revenue budget and projections. The complaint further alleges that based on this fraudulent manipulation of the cost estimates, Austal Limited prematurely recognized revenue and, as a result, met or exceeded analyst consensus estimates for earnings before interest and tax, known as EBIT, a key financial metric for the company.
The complaint alleges that Austal Limited and Austal USA acted knowingly or with severe recklessness in connection with the scheme that was allegedly carried out by Austal USA’s former president, Craig D. Perciavalle, former director of financial analysis, Joseph A. Runkel, and former director of the Littoral Combat Ships program, William O. Adams, all of whom the SEC charged with accounting fraud in March 2023. That litigation is ongoing.
“Transparency is a hallmark of financial reporting, and investors rely on companies to accurately and fairly represent their financial condition so that they can make informed decisions,” said Jason Burt, Director of the SEC’s Denver Regional Office. “The terms of this settlement make it clear that when companies manipulate their financial results to avoid falling short of analyst expectations – and those actions harm U.S. investors – the SEC will hold those companies accountable, wherever they are located.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Alabama, charges Austal Limited and Austal USA with violations of the antifraud provisions of the Securities Exchange Act of 1934. Austal Limited and Austal USA each consented to permanent injunctions, and Austal USA agreed to pay the aforementioned penalty. The settlements are subject to court approval. The SEC plans to seek the creation of a Fair Fund for distribution of the penalty to harmed investors.
In a parallel matter, the U.S. Department of Justice, Fraud Section, announced settled charges against Austal USA.
The SEC’s investigation was conducted by Kimberly Steckling, Kenneth Stalzer, and Donna Walker and supervised by Ian Karpel, Nicholas Heinke, and Mr. Burt of the Denver Regional Office. The ongoing litigation against the individuals is being led by Sharan Lieberman and Christopher Martin and supervised by Gregory Kasper, Mr. Heinke, and Mr. Burt.
