Real Estate

SEC: Former construction company CEO lied about post-Katrina business to raise stock price

Former CEO of Home Solutions of America fined and sanctioned

The former CEO and chief financial officer of a disaster restoration and construction business conspired with other company executives to lie about the company’s business in the wake of Hurricane Katrina to drive up the company’s stock price, the Securities and Exchange Commission said Tuesday.

Way back in 2009, the SEC filed charges against Home Solutions of America, and several of the company’s executives, including CEO Frank Fradella and Chief Financial Officer Jeff Mattich, for allegedly lying about non-existent business deals after Katrina, and fraudulently inflating the company’s stock before the Fradella allegedly sold millions of dollars in company shares.

According to the SEC, the company recorded millions in “bogus revenue” and issued a “series of materially false press releases boasting robust financial results following Katrina and other weather-related disasters,” which caused the company’s stock price to rise.

The company’s stock later “plummeted” after a number of large insider stock sales, including Fradella, who allegedly made millions by selling off inflated stock.

Now, nearly nine years later, Fradella and Mattich have agreed to pay disgorgement and penalties to settle the accounting fraud charges brought by the SEC in 2009.

To settle the SEC’s charges, Fradella agreed to pay $1 million in disgorgement and must serve a lifetime ban from serving as an officer or director of a public company. Additionally, Fradella is permanently prohibited from violating several federal securities laws.

Mattich agreed to pay disgorgement of $86,620 and a civil penalty of $50,000, and agreed to be permanently prohibited from violating similar federal securities laws.

The SEC previously obtained final judgments against three other HSOA executives and another conspirator shortly after filing charges. Additionally, back in 2011, the SEC obtained a default judgment against another executive, Brian Marshall, the former president of an HSOA subsidiary, which ordered him to pay disgorgement and interest of $111,168 and a civil penalty of $90,238, and barred him for life from serving as an officer or director of a public company.

Marshall also pleaded guilty to one count of securities fraud and was sentenced to 48 months in prison, while Fradella pleaded guilty to one count of false certification of financial reports by a corporate officer (in addition to an unrelated count) and was sentenced to one year in prison.

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