Swisher Hygiene will dissolve, capping an accounting-fraud scandal that led to the indictments of several executives and the company's commitment to a $2 million penalty. The SEC's Division of Corporation Finance confirmed that Swisher can stop filing periodic reports while the dissolution and liquidation is in process. CorpFin's no-action response sheds some light on the factors it looks for when granting such a request.
Accounting fraud and aftermath. The alleged fraud, which took place in 2011 and 2012, was meant to ensure that Swisher met or exceeded management forecasts. A 2015 indictment of Swisher's former CFO and its director of external reporting indictment maintained that the co-conspirators created fraudulent accounting entries and provided false or misleading information to Swisher’s outside auditor, its lender (Wells Fargo), and the public. Those defendants allegedly concealed their fraud and lied to the investigators in an internal investigation. Swisher's former director of financial planning pleaded guilty for his role in the fraud, and Swisher agreed to pay a $2 million penalty as part of a deferred prosecution agreement.
The fraud also led to private litigation by stockholders in connection with Swisher's M&A activity. A district court in North Carolina dismissed a private suit related to the acquisition of Choice Environmental Services. But two stockholder suits were filed in connection with Swisher's sale of a subsidiary to Ecolab; one of those suits is still pending.
The no-action request. Swisher asked CorpFin for relief from reporting requirements while it liquidated its assets and dissolved the corporation. The company filed a certificate of dissolution with Delaware in May 2016, closed its stock transfer books, and promised not to issue any new stock certificates. As a result of completing the sale transaction to Ecolab, Swisher has no remaining operating assets and generates no revenue. Relief from Exchange Act reporting requirements would save the company $150,000 per 10-Q and $350,000 per 10-K, the no-action letter estimates.
No-action relief. CorpFin agreed that Swisher can stop filing periodic reports pending its liquidation and dissolution, on the conditions stated in its no-action letter. Specifically, the Division gave a roadmap of sorts by highlighting the following representations that led to its no-action relief:
- Swisher Hygiene's stockholders approved and adopted the Plan of Dissolution;
- Swisher Hygiene will file reports on Form 8-K to disclose any material events relating to its winding up and dissolution, including the amounts of any liquidation distributions, payments and expenses;
- Swisher Hygiene will file a final report on Form 8-K and a Form 15 when the dissolution is complete;
- Swisher Hygiene is current in its reporting obligations under the Exchange Act;
- Swisher Hygiene filed its Certificate of Dissolution with the Delaware Secretary of State and the effective date of the dissolution was May 27, 2016;
- There is no trading in Swisher Hygiene's securities; and
- Swisher Hygiene's transfer agent has closed Swisher Hygiene's stock transfer books and discontinued recording transfers of Swisher Hygiene's stock.