The Securities and Exchange Commission (SEC) has charged three executives of Austal USA LLC, a shipbuilder based in Mobile, Alabama, for their involvement in a fraudulent revenue recognition scheme. The scheme allowed Austal’s parent company, Austal Limited, to meet or exceed analyst expectations. The SEC alleges that from January 2013 to July 2016, Craig D. Perciavalle, Austal USA’s former president, Joseph A. Runkel, its current director of financial analysis, and William O. Adams, former director of the Littoral Combat Ships program, artificially reduced the cost estimates of certain shipbuilding projects for the U.S. Navy by tens of millions of dollars. Despite knowing that the costs were higher than planned, they directed others to lower the cost estimates to meet Austal USA’s revenue budget and projections.
The SEC further alleges that Austal Limited prematurely recognized revenue, resulting in the company meeting or exceeding analyst consensus estimates for earnings before interest and tax (EBIT), a critical financial metric. The complaint filed in the U.S. District Court for the Southern District of Alabama seeks disgorgement plus prejudgment interest, civil money penalties, and officer and director bars from Perciavalle, Runkel, and Adams for violating the antifraud provisions of the Securities Exchange Act of 1934.
Jason Burt, Regional Director of the SEC’s Denver Regional Office, said that the defendants’ fraudulent cost estimates manipulation caused harm to U.S. investors in Austal Limited’s securities. Burt also stated that if the defendants had not manipulated the cost estimates, Austal Limited would have missed analyst consensus estimates for EBIT by a wide margin.
The SEC’s investigation was conducted by Kimberly Steckling, Kenneth Stalzer, and Donna Walker, supervised by Ian Karpel, Nicholas Heinke, and Jason Burt. The litigation is being led by Sharan Lieberman and Christopher Martin, supervised by Gregory Kasper.