United States v. Martin G. Fraser and Don W. Watson (CSK)
Court Docket Number: 2:09-CR-00372-PHX-SRB
This case is assigned to the Honorable Susan R. Bolton, United States District Court Judge for the District of Arizona, Sandra Day O’Connor United States Courthouse, 401 West Washington Street, Phoenix, Arizona.
Don W. Watson, former chief financial officer of Phoenix-based CSK Auto Corporation (CSK), a large specialty retailer of auto parts and accessories in the western United States, pleaded guilty on May 13, 2011 before Judge Susan R. Bolton. Defendant Watson pleaded guilty to one count of conspiracy to commit securities and mail fraud (Count 1: 18 U.S.C. § 371) stemming from a scheme to misstate CSK's reported earnings from 2001 through 2006. Watson was sentenced on September 19, 2011 to 24 months in prison, followed by three years of supervised release. Subsequently, on November 30, 2011, Judge Bolton amended Watson’s sentence to include restitution in the amount of $1,016.13. The charges against co-defendant Martin G. Fraser, the former president and chief operating officer of CSK, were dismissed in June 2010 as a result of his having died before the case was tried.
Watson and Fraser were indicted by a federal grand jury on April 7, 2009 and charged with one count of conspiracy (Count 1: 18 U.S.C. § 371), six counts of securities fraud (Counts 2-7: 15 U.S.C. § 78j(b)), six counts of false filings (Counts 8-13: 15 U.S.C. §§ 78m(a) and 78ff), eleven counts of mail fraud (Counts 14-24: 18 U.S.C. §§ 1341 and 1346), two counts of false books and records (Counts 25-26: 15 U.S.C. §§ 78m(b) and 78ff), and six counts of false statements to auditors (Counts 27-32: 15 U.S.C. § 78ff). Watson was also charged with two counts of false certification of financial reports (Counts 33-34: 18 U.S.C. § 1350(c)).
According to plea documents, Watson admitted that, from 2001 to 2006, he and others conspired to misstate CSK's income by concealing that the company had tens of millions of dollars in vendor rebates that CSK had claimed as income but were never collected. The rebates were, in fact, not owed to the company or could not be collected and therefore should have been written off of CSK's books. As a result of the fraud scheme, CSK reported tens of millions of dollars more in pre-tax income than it, in fact, earned.
According to court documents, CSK operated under the brand names Checker Auto Parts, Schucks Auto Supply and Kragen Auto Parts. During the time of the conspiracy, CSK was the largest specialty retailer of auto parts and accessories in the western United States and one of the largest such retailers in the entire United States. According to court documents, CSK purchased hundreds of millions of dollars worth of auto parts every year. Its vendors gave CSK allowances, or rebates, for products CSK purchased in exchange for CSK using the allowances for marketing of the vendors' products for sale in its stores. By reducing the cost to CSK of the products it purchased from vendors, the rebates increased CSK's income. According to plea documents, Watson admitted that, instead of writing off rebates that CSK had claimed but could not collect, he and others concealed the uncollectible amounts by causing vendor rebates from later years to be moved to cover the shortfalls in prior years and by causing vendors to be billed for rebates CSK was not owed. As a result of the scheme, CSK misstated its receivables and pre-tax income in its annual reports (Forms 10-K) in fiscal years 2002, 2003 and 2004 by approximately $10 million, $23 million and $19 million, respectively.
In related cases, Edward William O'Brien III, the former controller of CSK, and Gary Michael Opper, the former director of credits and receivables at CSK, pleaded guilty to one count of obstruction of proceedings before agencies, stemming from an attempt to thwart a U.S. Securities and Exchange Commission (SEC) investigation into CSK's accounting practices. Sentencing in O'Brien's and Opper's cases have been scheduled for July 25, 2011 at 1:30 p.m. and 2:00 p.m., respectively, before Judge Bolton.
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Victim Impact Statement
Order Granting United States’ Motion to Provide Notice to Victims by Publication
Order Granting Dismissal Against Defendant Fraser
Order Setting Scheduling Conference