U.S. Navy shipbuilder Austal USA agrees to $24M fraud settlement with SEC

Aug. 28 (UPI) -- The Securities and Exchange Commission said U.S. Navy shipbuilder Austal USA and its Australian parent company Austal Limited had agreed to settle charges of accounting fraud.

Austal USA, based in Mobile, Ala., agreed to pay a $24 million civil penalty for accounting fraud after the SEC charged the company with carrying out a "fraudulent revenue recognition scheme," the SEC said .

The SEC alleged Austal USA and Austal Limited engaged in a scheme to artificially reduce the estimated cost to complete U.S. Navy projects by tens of millions of dollars when they knew the shipbuilding costs were rising and were higher than planned.

The companies agreed to permanent injunctions and the SEC plans to create a Fair Fund for distribution of the penalty to harmed investors.

Former Austal USA president Craig D. Perciavalle, former director of financial analysis, Joseph A. Runkel, and former director of the Littoral Combat Ships program, William O. Adams, were all charged with accounting fraud by the SEC in March 2023.

That case is still underway.

The SEC complaint said the Austal executives Perciavalle, Runkel, and Adams "knew or were severely reckless in not knowing that these actions would cause Austral to prematurely and fraudulently recognize revenue" during the fraudulent periods.

According to the SEC, the costs were artificially lowered to meet Austal USA's revenue budget and projections.

"The terms of this settlement make it clear that when companies manipulate their financial results to avoid falling short of analyst expectations -- and those actions harm U.S. investors -- the SEC will hold those companies accountable, wherever they are located," SEC Denver Regional Office Director Jason Burt said in a statement.

The SEC complaint said Austal Limited and Austral USA, "From at least January 2013 through at least July 2016, Defendants, acting through their executives, engaged in a deceptive scheme to fraudulently overstate revenues and earnings before interest and tax ("EBIT")."

"Through the actions of certain personnel of AUSA, Austal, an Australian defense contractor, and AUSA, Austal's wholly owned United States subsidiary, orchestrated the fraud in order to meet or exceed analyst consensus estimates for Austal's EBIT, a key financial metric used by analysts and investors," the complaint added.

The complaint said the Austal fraud "caused Austal to report materially false and misleading information to analysts and the investing public."

The share prices of the companies rose during the alleged fraud and fell when the fraud was revealed.

"During the time period Austal was making material misstatements and omissions, its Ordinary Shares' price was materially affected as it rose in value and during the time period that Austal started to disclose its fraud its stock price was materially affected as it decreased in value."

The SEC complaint said reasonable investors would have wanted to know that the Austal financial numbers were being intentionally manipulated.