Former CEO of Publicly Traded Manufacturer Charged with Fraud for Allegedly Misrepresenting Company’s Financial Condition
CHICAGO — The former Chief Executive Officer of a publicly traded engine manufacturer in a northwest suburb of Chicago has been indicted on federal fraud charges for allegedly deceiving investors about the company’s financial performance.
GARY S. WINEMASTER served as CEO and Chairman of the Board of Directors of a Wood Dale-based manufacturing company. He was also the company’s largest shareholder. From 2014 to 2016, Winemaster schemed with the company’s vice president of sales, CRAIG M. DAVIS, its general manager, JAMES F. NEEDHAM, and others to fraudulently inflate – by millions of dollars – the revenue reported by the company to the investing public, according to an indictment returned Thursday in U.S. District Court in Chicago. In doing so, the trio deceived shareholders and other investors about the company’s financial health and performance, the indictment states.
The indictment charges Winemaster, 61, of Mundelein, with one count of securities fraud, ten counts of wire fraud, two counts of making false statements to an auditor, and one count of failing to certify financial reports. Davis, 45, of Batavia, and Needham, 57, of Leavenworth, Kansas, are each charged with one count of securities fraud and ten counts of wire fraud. U.S. Magistrate Judge M. David Weisman scheduled arraignments for July 25, 2019, at 10:00 a.m.
The indictment was announced by John R. Lausch, Jr., United States Attorney for the Northern District of Illinois; and Jeffrey S. Sallet, Special Agent-in-Charge of the Chicago office of the FBI. The U.S. Securities and Exchange Commission, which filed a civil enforcement lawsuit against Winemaster, Davis, and Needham, provided valuable assistance. The government is represented by Assistant U.S. Attorneys Paul Tzur and Heidi Manschreck.
According to the indictment, the defendants schemed to defraud shareholders and other investors in connection with the company’s common stock, which was listed on the Nasdaq Stock Market. The defendants concealed material information about special terms of sales to customers, causing the company’s accounting department to recognize inflated revenue figures for those transactions, the indictment states. Winemaster and Davis also authorized shipments of products to customers who had not agreed to accept delivery, the indictment states. The shipments falsely supported the accounting department’s treatment of the transactions as final sales, thus fraudulently causing the company to book revenue from the deals, the charges allege.
The defendants also arranged additional transactions by the company’s customers that were meant to fraudulently support the company’s accounting for earlier sales, the indictment states.
The public is reminded that an indictment is not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
The maximum sentence for securities fraud is 25 years in prison, while wire fraud and making false statements to an auditor are each punishable by up to 20 years. Failing to certify financial reports is punishable by up to ten years and a fine of up to $1 million. If convicted, the Court must impose reasonable sentences under federal statutes and the advisory U.S. Sentencing Guidelines.