September 30, 2022

SEC charges infrastructure firm Granite Construction and former executive with financial reporting fraud

washington d.c.The Securities and Exchange Commission busy today Granite Construction, Incorporated and its former Senior Vice President, Dale Swanberg, with fraud for inflating the financial performance of the main Swanberg-run subdivision. In 2021, Granite restated its 2017 to 2019 financial statements to correct revenue and profit margin errors allegedly caused by Swanberg’s misconduct. The company agreed to pay $12 million to adjust the DRY charges.

In a separate administrative proceeding, the company’s former CEO, James H. Robertsand former CFOs, Laurel Krzeminsky and Jigisha Desaidespite not being charged with misconduct, agreed to return more than $1.4 million, $327,000and $176,000, respectively, in bonuses and indemnities to Granite. These recoveries were made pursuant to Section 304 of the Sarbanes-Oxley Act (SOX), which requires executives to repay certain indemnities when an issuer is required to restate its financial statements due to misconduct.

“We are committed to using SOX 304 as the Congress intention: to encourage a culture of compliance in public companies by ensuring that senior managers are not rewarded when their company violates key reporting requirements,” said Gurbir S. Grewaldirector of the DRY Enforcement Division. “Executives should be aware that we consider SOX 304 a broad authority in determining all forms of compensation that should be reimbursed to the company.”

The DRY The lawsuit against Swanberg alleges that from 2017 he faced demands within Granite to turn around his group’s sluggish performance and improve its financial metrics. Swanberg and his group, however, would have encountered significant increases in projected costs for their construction projects which, if recorded, would have diminished the group’s earned revenue. The complaint alleges that Swanberg, in the face of these competing demands, orchestrated a scheme to manipulate profit margins and improperly postpone the recording of projected costs to mask the group’s sluggish performance. The program reportedly collapsed in mid-2019 when several construction projects neared completion and Swanberg could no longer delay acknowledging cost increases.

“Swanberg’s alleged manipulation of financial metrics to mask deteriorating performance inflated Granite shares and, predictably, the price fell after full disclosure, causing significant harm to investors” , said Monique C. Winklerregional director of DRY San Francisco Regional office. “When executives withhold material facts from investors, as alleged in our complaint, the SECOND will take action against businesses and individuals to ensure we maintain fair and open markets.”

The DRY complaint against Granite is based on Swanberg’s alleged misconduct. The complaint credits Granite for reporting itself to the Commission and undertaking corrective action by, among other things, rethinking its internal accounting controls and policies and procedures to increase transparency and accuracy of expected costs for construction projects. Without admitting or denying DRY findings, Granite agreed to be barred from violating Section 10(b) of the Securities Exchange Act of 1934 and other provisions of securities laws, and to pay a civil penalty of $12 million. The proposed judgment is subject to court approval.

The DRY complaint against Swanberg, which was filed in the Federal District Court of North district of Californiaaccuses him of violating anti-fraud and other provisions of the federal securities laws and seeks, among other remedies, restitution plus prejudgment interest, civil penalties, and a bar for officers and directors.

Without admitting or denying DRY findings, Roberts, Krzeminski and Desai each agreed to cease and desist from violating SOX Section 304. Roberts’ order provides that he will return a total $1.4 millionincluding $627,000 in cash and 27,527 shares to Granite. As part of the orders, Krzeminski and Desai have already returned $327,708.50 and $176,100.51respectively, to granite.

The DRY survey was conducted by David Zhu, Ellen Chenand Anthony Moreno of the DRY San Francisco Regional office. He was supervised by Jennifer J. Lee. Litigation against Swanberg will be conducted by Susan La Marca, Mr Zhouand Mr Moreno.

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