Feds file complaint against 2 former Bally execs

By Liz Benston

Wednesday, Sept. 24, 2008 | 5:40 p.m.

Resolving a three year securities fraud investigation by federal regulators, the Securities and Exchange Commission today filed an enforcement complaint against two former executives of slot maker Bally Technologies for artificially inflating the company's reported revenue and earnings.

Bally's former Chief Accounting Officer Steven M. Des Champs and former Vice President of Finance Martha W. Vlcek "made misleading disclosures and omissions regarding revenue recognition and made materially false statements to the company's outside auditors when they represented the transactions were proper," among other claims made by the SEC.

As a result, reported income was inflated from 23 percent to 28 percent from the fourth quarter of the company's fiscal year 2003 through the second quarter of fiscal 2004, according to the 35-page complaint, filed in federal court in Nevada.

Bally Technologies isn't a party in the complaint.

Also today, the SEC accepted a settlement offer from Bally that includes a cease and desist order requiring that the company remain in compliance with federal securities laws.

Regulators made no allegations of fraud against the company, and no fines or other penalties were imposed.

Bally's prompt cooperation with regulators factored into the settlement offer, the SEC said.

During a year-end audit in 2005, Bally's accounting firm recommended that an independent party review revenue transactions after accountants couldn't substantiate some of them, the complaint said. That review led to the first of two reinstatements of prior financial statements. The SEC launched an investigation into the company's reporting problems in 2005, shortly before Bally restated results for fiscal years 2003, 2004 and 2005.

Bally filed a second restatement after auditors discovered additional transactions on which Bally had improperly recognized revenue, the complaint said.

The SEC today filed a separate cease and desist order against former Bally Chief Financial Officer Robert Saxton, requiring that he follow federal reporting requirements in his future career. Saxton, 54, left the company in 2006.

Des Champs, 42, is a certified public accountant in Nevada. He left the company in 2006. Vlcek, 48, resigned from the company in 2005, returning as a consultant until April 2006.

Bally CEO Richard Haddrill said the company is "pleased with this resolution of the SEC investigation, which allows us to put these matters behind us as we continue to execute our strategies for the long-term success of our business."