States Attorney's Office District of Connecticut
|November 2, 2010||
FORMER UNITED RENTALS CFO WHO MADE FALSE FILINGS WITH THE SEC IS SENTENCED
The United States Attorney for the District of Connecticut announced that MICHAEL J. NOLAN, 49, of Raleigh, North Carolina, formerly of Greenwich, Connecticut, was sentenced today by Senior United States District Judge Ellen Bree Burns in New Haven to three years of probation for making false filings with the U.S. Securities and Exchange Commission. NOLAN also was ordered to pay restitution of more than $1 million.
According to court documents and statements made in court, from September 1997 to December 2002, NOLAN served as the Chief Financial Officer of United Rentals, Inc. and its wholly-owned subsidiary, United Rentals (North America), Inc., (collectively “United Rentals”). The common stock of United Rentals, a Greenwich-based equipment rental company that rents equipment ranging from heavy machines to hand tools, is publicly traded on the New York Stock Exchange. As a publicly traded company, its directors, officers, and employees are required to comply with federal securities laws that are designed to ensure that the financial information of publicly traded companies is accurately recorded and disclosed to the investing public. Among other filings, the Company was required to file with the SEC annual reports of its operations, including audited consolidated financial statements, and quarterly updates of its financial statements reporting on its financial condition. The Company also communicated with the public through other documents filed with the SEC, including press releases submitted with current reports on SEC Form 8-K. In addition, the Company held quarterly public conference calls with analysts and members of the public in which there were discussions of the Company’s results in the preceding quarterly period.
According to its public filings with the SEC, the principal component of United Rentals’ revenue stream came from equipment rental. Another major component of the Company’s revenue was the sale of used rental equipment. The Company’s financial statements contained information about the company’s total revenues, breaking the amounts down to show how much of those revenues were attributable to equipment rentals, the sale of rental equipment, and sales of equipment and merchandise, and other revenues. The consolidated financial statements also included information concerning the Company’s earnings per share (“EPS”).
In approximately December 2000, NOLAN and others, including John Milne, engaged in transactions designed falsely and fraudulently to inflate the United Rentals’ earnings per share by improperly recognizing millions of dollars in additional profit for the fourth quarter of 2000 and the full year 2000. As the CFO of United Rentals, NOLAN signed annual reports, quarterly reports and other documents that were submitted to the Securities and Exchange Commission. The annual reports were filed on SEC Form 10-K and the quarterly reports were filed on SEC Form 10-Q. NOLAN also signed and filed other documents with the SEC in his role as CFO of United Rentals, including reports of the Company’s operations filed on SEC Form 8-K.
In approximately December 2000, NOLAN signed and caused to be filed with the SEC a then current report on Form 8-K, which included a press release in which the Company publicly announced its lower EPS forecast for the fourth quarter 2000. The press release also noted that EPS for the full year 2000 was expected to be $1.89. However, NOLAN and others knew these revised projections were false and misleading in that they did not reflect actual estimates of earnings per share for the fourth quarter of 2000 and full year 2000. In an effort to meet the revised EPS forecast, NOLAN and others fraudulently inflated the Company’s EPS numbers for the fourth quarter 2000 and the full year 2000 by engaging in a transaction that the Company improperly accounted for as a minor sale leaseback. NOLAN and others used this transaction to fraudulently recognize approximately $25.3 million in revenue and approximately $12.2 million in profit for the Company in the fourth quarter 2000. NOLAN knew that the Company was not permitted to recognize the revenue or profit that was booked as a result of this transaction. Nevertheless, NOLAN and others caused the Company to proceed with fraudulently recognizing those revenues and the purported profit during that period.
As a result of this fraudulent recognition of revenue and profit, United Rentals was able to meet the revised EPS numbers that had been announced in its December 18, 2000 press release. Between approximately March 2001 and March 2002, NOLAN, Milne and others benefitted personally from the Company’s falsely inflated EPS numbers by selling a substantial amount of the Company’s stock at a fraudulently inflated price.
Today, Judge Burns ordered NOLAN to pay restitution of $1,174,904.
On December 12, 2007, NOLAN waived his right to indictment and pleaded guilty to one count of making false filings with the U.S. Securities and Exchange Commission.
From December 2002 through his termination in August 2005, John Milne served as United Rentals’ President and CFO. Milne previously pleaded guilty to one count of conspiracy to falsify the books and records of United Rentals and, on March 11, 2010, he was sentenced to 27 months of imprisonment, followed by three years of supervised release. Also, in order to resolve a separate civil action brought by the Securities and Exchange Commission, Milne agreed to disgorge $6.25 million.
This case was investigated by the Federal Bureau of Investigation with the cooperation and assistance of the Securities and Exchange Commission. The case was prosecuted by Assistant United States Attorney Michael S. McGarry.
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