2 former Austal executives and 1 current charged with fraud
MOBILE, Ala. (WALA) - A federal grand jury has indicted Austal USA’s former president, a current employee and a former executive, accusing them of cooking the books to make company’s signature littoral combat ship program appear more profitable.
The Securities and Exchange Commission simultaneously filed a federal lawsuit against the three, making many of the same allegations and asking a judge to order them to surrender ill-gotten gains.
Taken together, the court actions represent a major blow to one of the region’s most important employers and its signature product, the littoral combat ship, which is produces for the Navy.
The defendants are Craig Perciavalle, who was the shipbuilder’s president until he abruptly resigned in 2021 amid investigations by multiple agencies; Joseph Runkel, the company’s director of financial analysis; and William Adams, the former littoral combat ships program director. They are charged with conspiracy, wire fraud and wire fraud affecting a financial institution.
The defendants could not be reached for comment. Austal on Sunday released a statement saying that the company has been cooperating with the Justice Department and the SEC.
“Austal USA has invested significant time and resources to strengthen its compliance program since the investigations began,” the company stated. “While significant changes have been implemented, a review of its current compliance programs and practices is continuing to ensure that it maintains a significantly enhanced compliance program and conducts business with the highest level of integrity.”
The charges carry a maximum penalty of 30 years in prison, although the actual punishment likely would be less under advisory sentencing guidelines.
The indictment accuses the defendants of orchestrating a scheme to mislead Austal USA shareholders and financial institutions from about 2013 until July 2016.
It alleges that the three conspired to misstate the profitability of each ship each littoral combat ship. The fraudulent accounting measures kept Austal’s stock high, according to the allegations. But prosecutors say that when higher costs eventually became public, the stock price took a major hit, and Austal had to write down more than $100 million.
The SEC lawsuit alleges that the Perciavalle, Runkel and Adams earned tends of thousands of dollars in bonuses by overstating revenues and earnings.
Prosecutors allege that the defendants misled an independent auditor, the shipbuilder’s own parent company and investors about the financial performance of the LCS program and the firm’s overall financial condition. They did this by suppressing cost estimates for materials to unrealistic levels, according to the allegations.
The executives’ actions, the indictment alleges, hid the fact the that the cost of producing each ship had risen by millions of dollars. The indictment alleges that the defendants similarly hid growing labor costs after it became clear the ships would take significantly more labor hours.
The criminal and civil filings allege that the defendants’ fraudulent numbers caused Austal to make false financial disclosures to the SEC and to the public. The lawsuit cites a number of news releases. For instance, the company sent one news release in August 2014 that read: “Austal Delivers Record Revenue and Reduces Net Debt by 50%.”
A news released the following February was titled: “Austal Delivers Revenue and Earnings Growth; Returns to Dividends.”
The information contained in those and other releases was false because of fraud committed by the defendants, the lawsuit alleges.
The next step in the criminal case will be for Perciavalle, 52, Runkel, 54, and Adams, 63, to appear for their arraignments, where they are expected to plea not guilty.
Updated at 6:57 p.m. with more detail about the allegations.
Updated at 12:42 a.m. on April 3 with a response from Austal.
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