The civil (not criminal) charges relate to sales and leaseback deals at URI, designed to allow the company to record revenues early, inflating its figures for 2000 and 2001. The deals, arranged by URI CFO Michael Nolan and others, allowed them to make URI appear more profitable and inflate its share value.
The original SEC complaint issued against Nolan explains the scheme: ‘In the face of deteriorating business conditions at URI, Nolan and others carried out the fraud primarily through a series of interlocking three-party sale-leaseback transactions, in which URI sold used equipment to a financing company (“Financing Company”) and then leased the equipment back for a short period.’
‘To induce the Financing Company to participate in these transactions, Nolan and others arranged for a third-party equipment manufacturer to guarantee the Financing Company against any losses. At the same time, URI guaranteed the equipment manufacturer against any losses it might incur under its guarantee to the Financing Company.’
According to the December 31 SEC filing, Apuzzo substantially assisted the fraud ‘by signing agreements with URI that he knew or was reckless in not knowing were designed to hide URI’s continuing risks and financial obligations relating to the sale-leaseback transactions, and directing or approving the issuance of inflated invoices that he knew or was reckless in not knowing URI, through Nolan and others, would use to inflate URI’s gain on the transactions’.
URI’s CFO Michael Nolan has pleaded guilty to a criminal charge of making a false filing. The criminal charge against Nolan carries a maximum penalty of ten years in prison and a $22m fine. Nolan must pay restitution of $11m. Nolan also consented to a civil judgement against him, barring him from acting as a director.
Terex restated its accounts for 2000–2003 in August 2005, saying in a filing at the time that it had received a subpoena from the SEC for copies of its documents relating to transactions between Terex and URI. In a statement, it added, “Terex is also reviewing other historical accounting issues, including historical revenue recognition practices, certain reserve balances and certain transactions with United Rentals, Inc.”
Apuzzo was CFO of Terex from 1999 until 2002, when he became president of the then newly-formed Terex Financial Services. He resigned from the latter post at the time of the restatement, in 2005.
A Terex spokesman said that the company is co-operating fully with the investigation.
